Can ASEAN Serve as a Buffer Zone in the US-China Trade War? Report Reveals Southeast Asia's Risk of Becoming a Supply Chain 'Sandwich'

As the trade conflict between the United States and China persists, the importance of Asian countries to both Washington and Beijing continues to rise. However, this growing significance also makes the region more vulnerable to policy shifts in the two capitals. Experts believe this dual role will bring both benefits and risks in the future.

In Southeast Asia, for example, export growth and technology investment coexist with an expanding trade deficit, pressure from China's overcapacity, and increasingly strict scrutiny over origin, composition, and export controls. How should Southeast Asian nations respond to the US-China conflict?

A recent study by Shay Wester, Director of Asian Economic Affairs at the Asia Society Policy Institute, reveals that ASEAN trade is increasingly centered around two external hubs. First, China is Southeast Asia's largest trading partner, accounting for about one-fifth of total ASEAN trade and serving as the primary source of factory inputs. Meanwhile, the United States has become ASEAN’s fastest-growing major export market, with exports rising 37.5% between 2022 and 2025.

The analysis indicates that while ASEAN's trade structure is no longer entirely dependent on China, this does not mean decoupling: the region’s manufacturing boom still heavily relies on Chinese inputs. However, ASEAN’s trade deficit with China has become a structural issue. For instance, ASEAN’s trade deficit with China reached a record $296 billion in 2025—more than double the 2023 figure. Due to imports consistently exceeding exports, the deficit further widened by 24% in the first half of 2026, reaching $166 billion.

By sector, the imbalance in China-ASEAN trade is concentrated in manufactured goods. Notably, in the previous year, all six major ASEAN economies recorded trade deficits with China for the first time, signaling that China’s export surge is reshaping ASEAN’s industrial base and consumer markets. Electronics, machinery, and intermediate inputs are the main drivers of this growth.

The study also notes that China’s chip shipments more than doubled in the first half of 2026, while ASEAN’s value-added role in global supply chains continues to rise—"this growth momentum also benefits consumers." For example, China’s auto exports to ASEAN grew 45% in 2025, with electric vehicle exports surging nearly twofold to $8.2 billion, driven by China’s wave of clean technology exports.

On May 14, 2026, U.S. President Trump and Chinese President Xi Jinping took a photo together at the Temple of Heaven in Beijing. (AP)

Will Southeast Asia Replace China?

However, regarding the widely discussed question of whether Southeast Asia will replace China’s status as the “world’s factory,” the study argues that ASEAN is not simply substituting for China in global supply chains. Instead, ASEAN is becoming a critical junction for U.S. demand, Chinese inputs, ASEAN production capacity, and global artificial intelligence (AI) infrastructure development. "ASEAN governments are striving to maintain access to both markets while simultaneously confronting risks from China’s overcapacity, U.S. trade pressure, supply chain fragmentation, and geopolitical uncertainty."

Nonetheless, the report identifies a new dilemma for ASEAN nations: while exporting more products to the U.S., ASEAN economies are also importing more parts, machinery, electronics, clean technology, and industrial goods from China. These supply chains make the region an attractive alternative production base, but they also draw scrutiny from Washington over transshipment, rules of origin, and economic security.

The report predicts that balancing relations with both powers will become "increasingly difficult" for ASEAN. Governments are trying to avoid high U.S. tariffs, mitigate the impact of China’s export surge, and maintain access to Chinese raw materials to preserve export competitiveness—"these three goals are becoming harder to reconcile." The core issue lies in whether the region can continue benefiting from its position at the intersection of two systems without increasing its vulnerability to either side.