China-ASEAN FTA: A Game Changer

ASEAN has been facing Trump's tariffs which are part of the broader "America First" strategy aimed at rebalancing trade relations and bringing manufacturing back to the US. These weaponizing tariffs provide few alternatives for ASEAN countries looking for hedging and leverage strategies to counter the tariffs’ effects.

ASEAN engages in extensive trade with the US, with total goods traded reaching USD 476.8b in 2024. US exports to ASEAN were estimated at USD 124.6b, while imports from the region totalled USD 352.3b.

Trump's tariffs in 2025 have significantly impacted ASEAN countries by increasing export costs, disrupting supply chains, causing unemployment and fuelling economic uncertainty.

Not only that, on Thursday, 25 September, Trump went further to announce another round of tariffs aimed to close the loophole of Chinese exports reaching the US through third countries, which is to go into effect on 1 October, applying added import duties ranging from 25 to 100% on pharmaceuticals, heavy trucks, kitchen cabinets, bathroom vanities and upholstered furniture. A significant portion of furniture and kitchen cabinet manufacturing originates from China and Southeast Asia.

Hence, hedging and balancing are strategies ASEAN states may apply to cope with the new uncertain unilateral tariffs. ASEAN has thus chosen to join the China-ASEAN Free Trade Area (CAFTA) this year. The economic benefits from CAFTA allow ASEAN members to engage with China from a position of equality and respect. So, the profits from trade can be used to develop their countries and diversify their economies.

Crucially, the FTA creates a stabilizing economic interdependence. It allows ASEAN to hedge between the US and China, and while benefiting economically from China, individual ASEAN members can still maintain strong security ties with the United States, Japan and Australia without facing immediate economic retaliation from Beijing.

In addition, ASEAN can upgrade their trade relations through CAFTA 3.0 to deepen economic integration through developments in the digital economy, green economy and supply chain connectivity.

This upgraded pact, with negotiations completed in May 2025, follows a period of strong trade growth and aims to boost mutual investment and cooperation. As it introduces moves beyond traditional trade and investment, the agreement emphasises cooperation in areas like digital infrastructure, e-payments, cybersecurity and artificial intelligence, fostering innovation and digital trade.

The formal signing is expected to occur before year's end, strengthening regional cooperation amid global trade uncertainties.

On supply chain connectivity, CAFTA 3.0 establishes rules for supply chain cooperation, facilitating the flow of goods and services and enhancing infrastructure connectivity. The framework includes collaboration on green investment, trade and sustainability standards to promote sustainable development.

The digital and green economies, aligning regional standards and providing institutional safeguards for future growth areas, further solidify the China-ASEAN connection.

The China-ASEAN Free Trade Area (CAFTA) version 3.0, will be a game changer as the world's largest free trade zone among developing countries. Under strategic leadership, China and ASEAN nations are poised to deepen practical cooperation across sectors, sustaining strong trade momentum amid tech-driven shifts and CAFTA 3.0's digital focus.

The agreement sends a strong message in support of multilateralism and free trade in the face of rising protectionism. Analysts say it has fundamentally tied Southeast Asia's economic growth to engagement with China, but on terms that have so far largely supported ASEAN's own development goals and its principle of maintaining a balanced and independent position among the world's great powers.

The China-ASEAN Free Trade Agreement (CAFTA) is significant geopolitically because it reconfigures the regional power dynamics in Southeast Asia, cementing China's economic influence and strengthening the region's overall position in global trade.

CAFTA has made China ASEAN's largest trading partner. Two-way trade has skyrocketed since the agreement came into effect, providing ASEAN producers with unparalleled access to the world's second-largest economy.

The vast majority of goods traded between China and ASEAN now enjoy zero tariffs. This makes ASEAN's exports such as agricultural products (fruit like durian, rubber and coffee), electronics components and raw materials, much more competitive in the Chinese market.

Specific sectors have seen enormous gains. For example, Thailand, Vietnam and Malaysia have become major exporters of fruit and rice to China while Cambodia's rice exports have also benefited significantly.

Moreover, CAFTA has made it easier for Chinese companies to set up manufacturing plants in ASEAN countries to take advantage of lower labour costs, specific resources and the export of finished goods back to China or elsewhere with minimal tariffs. This has integrated ASEAN deeply into China-centred supply chains.

This inflow of Chinese investment creates jobs, builds infrastructure and can lead to technology and knowledge transfer. Countries like Vietnam, Indonesia and Thailand have seen significant investments in manufacturing sectors, like electronics, textiles and automotive parts.

Hence, CAFTA is not just a trade pact; it is a strategic framework that links the economic future of Southeast Asia to China, creating a complex relationship of opportunity, dependency and regional power-balancing.

The China-ASEAN Free Trade Area (CAFTA) is critically important geopolitically because it is a primary vehicle through which China projects its influence in Southeast Asia, shapes the regional order and counters the strategies of other major powers, particularly the United States.

“The widening gap in influence between China and the US in Southeast Asia can be attributed to three major external objective factors”, said Ge Hongliang, deputy director of the College of ASEAN Studies at Guangxi University for Nationalities.

“Emerging countries are rising while the West is relatively declining,” Ge went on to say, adding that as an important part of the Global South, Southeast Asia actively supports multilateralism and globalisation, seeking certainty, which aligns with China's development philosophy and needs.”

However, the benefits are not without costs or risks for ASEAN. Trade imbalances mean some ASEAN countries now have significant trade deficits with China, importing much more manufactured goods than they export. This can lead to deindustrialisation in certain sectors that cannot compete with Chinese products.

In addition, there is a risk of becoming overly dependent on the Chinese economy and finance. An economic slowdown in China immediately impacts ASEAN exporters. Also, the benefits of CAFTA are not distributed evenly within ASEAN. More developed economies, like Singapore and Vietnam, have leveraged it more effectively than less-developed ones, like Laos and Cambodia, which are facing fiscal deficit and debt traps.

Not only that, some businesses have complained about non-tariff barriers and regulatory hurdles when trying to access the Chinese market, which can negate some of the FTA's advantages.

However, ASEAN itself is determined to maintain its "centrality" in regional architecture and avoid being a mere satellite of China. Member states actively engage the US, Japan and India through groups like the East Asia Summit and trade deals like the Regional Comprehensive Economic Partnership (RCEP).

In the meantime, CAFTA appears to be a win- win regional trade partnership, unless it faces further retaliation from Trump.