This article first appeared in The Edge Malaysia Weekly on April 14, 2025 - April 20, 2025

ECONOMIC growth in the Asean+3 ­(China, including Hong Kong, and Japan and South Korea) region is likely to come in at a slower pace of 3.8% this year compared with an earlier expectation of 4.2% as a result of tariffs imposed by the US, the Asean+3 Macroeconomic Research Office (AMRO) projects.

However, with targeted support and potential interest rate cuts from some of the countries, it might be possible for the region to notch up around 4% growth this year, its chief economist Hoe Ee Khor says.

Khor was speaking during a panel discussion on the region’s outlook at the Asean Investment Conference in Kuala Lumpur last Tuesday (April 8).  

It should be noted that these preliminary projections by AMRO, and Khor’s comments, were made prior to the surprising overnight decision by US President Donald Trump on April 10 to drop his earlier-announced tariffs on all the US’ trade partners — except China — to a baseline 10% for 90 days, to allow for trade negotiations. They, however, give a sense of what the potential impact could be if the earlier tariff rates set by the US are imposed. 

The intended rates were “quite shocking”, Khor notes, especially for countries such as Cambodia (49%), Laos (48%) and Viet­nam (46%). The tariffs were part of Trump’s sweeping trade policy targeting countries with which the US has large trade deficits. Malaysia was hit with a 24% tariff.

Even after adjusting the headline tariff rates for exempted items, on average, the tariff rate across the region would have still been over 20%, Khor says.

“We had projected 4.2% growth for ­Asean+3 this year, but that was before the tariff was announced. Now, we’re looking at 3.8% growth this year and 3.4% growth next year,” Khor says. These estimates are expected to be revised again soon, to take into account the 90-day freeze and the rapidly evolving scope of trade actions and retaliations. On April 10, Trump raised tariffs on China to 145% (including 20% fentanyl tariffs from earlier this year). China later reciprocated by raising its tariffs on US imports to 125%. 

The impact of the US’ earlier rates on the region varies by country, with ­Vietnam expected to be particularly hard hit, Khor says.

AMRO had initially projected 6.5% economic growth for Vietnam this year, but now expects 5.5% growth. For most countries, though, AMRO expects about half a percentage point to be shaved off from its projected growth.

Nevertheless, Khor believes the regional economy will stay resilient despite the high tariffs.

“The reason we are relatively confident … is because, if you look at exports to the US as a share of exports from the [Asean+3] region, and as a share of the gross domestic product (GDP), it has actually come down sharply over the years. We used to [see] exports of close to 24% to the US in 2000; now we are exporting less than 15%. And, as a share of GDP, it’s only less than 4%.

“So, because of that, the impact from the [earlier announced] tariffs on the economy and on exports is relatively limited. That’s not to say it won’t be painful. It is going to be painful for the sectors that are affected,” he states.

Another positive thing going for the Asean+3 region is its strong accumulation of reserves over the years. “They (the countries) now have what we call policy space, meaning that they have built up reserves in terms of fiscal reserves as well as foreign exchange reserves. And, because of the monetary policy, the exchange rate is really well anchored.

“That means the central bank has the option to cut interest rates if they need to, in order to support the economy. On the fiscal side, the government has fiscal space to undertake a stimulative policy to support the economy.

“So, our advice has been that the governments should undertake targeted support for the economy, to prevent it from falling too much. If they do that, then we believe growth in the region will be higher. With policy response, we can raise the growth rate projection by 0.3 or 0.4 [percentage points],” he says.

There is “complementarity” among Asean+3 countries, Khor notes. “What we have noticed is that the advanced countries, especially China, are investing in the less-developed countries. In the past, it was Japan and South Korea, and they are still doing this, but now China has become one of the biggest investors in the region.

“So, provided they [keep doing] that, I think we are quite positive about the region being able to register around 4% growth [this year].”

There are things that Asean can do to become more competitive as a marketplace as the tariff “crisis” plays out, according to another panel speaker, Datuk Siobhan Das Bachran, CEO of the American Malaysian Chamber of Commerce.

Reducing barriers across borders is one of them, she says, citing the Johor-Singapore Special Economic Zone (SEZ) as an interesting experiment on that.

“Is that something that you might want to expand into the northern part of Malaysia? Do you take the SEZ concept and make it happen in the northern region between Penang and the states within the country, and free up the movement of goods? Or do we cross borders into Thailand to see what we can do there? How do we look at borders differently?” she asks, highlighting the possibilities.

“I think the biggest lesson that this crisis, for lack of a better word, is giving us is the opportunity to rethink how business models work, how business structures have worked. That requires a little bit of innovation and a dose of bravery.”

Another speaker, Standard Chartered international president Benjamin Hung, observes that Asean countries would do well to work together as a collective to achieve outcomes.

“As a global bank, we are positive on Asean — we are the only international bank that’s present in all 10 Asean markets because we believe in it. Sometimes, I find that Asean countries, rather than working together more, tend to have a sense of competition among themselves. There’s a ‘your gain is my loss’ [thinking], rather than working on the collective Asean. But Asean as a collective can be taking a lot of market share or activity from around the world,” he points out.

“I do find differences in rules, licensing, sustainability standards and data, among other things. I think that a more aligned Asean will bode well for the collective. I do hope that this year, given Malaysia is the chair of Asean, there [will] really be a focus on some of these [things],” Hung says. 

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