By: Salman Rafi Sheikh
Southeast Asia is playing smart. It is tapping into opportunities that it really thinks are real and beneficial. The region seems to be finding more opportunities in partnerships with China than other countries, including the US.
Therefore, days after President Donald Trump visited Malaysia and told Southeast Asian leaders that “the United States is with you one hundred percent,” those same leaders quietly did something far more consequential: they signed the upgraded China-Asean Free Trade Area –ACFTA 3.0 –binding Asia’s most dynamic economies into a new layer of rules, standards, and commercial commitments with Beijing.
The ceremony on October 28 was not theatrical. It was, in its way, definitive. The region chose contracts over compliments and rhetorical promises.
The upgraded pact makes all sense. China and Asean are each other’s largest trading partners. In the first 10 months of 2025, bilateral trade reached US$785 billion, an increase of 9.6 percent year-on-year, while the full-year 2024 trade hit a record US$982.1 billion. US-Asean trade pales in comparison, reaching a record US$453 billion in 2024. Southeast Asia’s logical priorities, therefore, lie with China.
For the region, it would make little sense not to engage with the US either. The trade volume is still huge and can increase. For the same reason, it makes little to no sense for the region to uncritically adopt an approach that might tie it to the ongoing global geopolitical rivalry between China and the US.
Therefore, it decided to upgrade its existing pact with China right after Trump’s visit, knowing fully that Beijing, being hit by US trade tariffs, is also keen to do such upgrades to expand its access to markets. After all, it is a win-win for both.
For instance, this upgrade helps Beijing quietly blunt the force of US trade sanctions. By deepening Asean’s role as China’s economic “buffer,” ACFTA 3.0 gives Chinese exporters an alternative market when US tariffs bite and makes it easier for Chinese firms to shift assembly to Vietnam, Malaysia, or Indonesia. This will allow Beijing to route goods through Southeast Asia and often avoiding the full cost of American penalties.
The agreement’s digital-trade and customs provisions (like electronic certificates of origin) streamline origin verification, enabling manufacturers to certify Asean origin more easily while still using Chinese inputs. Its supply-chain and green-economy chapters lock in access to critical resources in the region, letting China secure minerals and renewable-energy inputs from Asean countries—an institutional hedge against US pressure.
At the same time, by accelerating regional use of the yuan in trade settlement, China reduces its exposure to dollar-based sanctions mechanisms. In short, ACFTA 3.0 gives Beijing the tools to re-engineer the geography of production, diffuse the impact of US coercion, and strengthen its economic resilience. Most importantly, the Asean region itself is facilitating China in achieving its key objectives.
Although the upgraded pact does not explicitly mandate trade settlement in local currencies, China and Asean have already been moving decisively in that direction. Cross-border CNY settlement between the two sides grew by more than 35 percent in 2024, with the yuan now used for roughly a quarter of bilateral trade.
Asean’s own push for de-dollarization is reinforcing the trend: the share of intra-Asean trade conducted in local currencies has climbed from under 10 percent in 2019 to over 25 percent in 2024, supported by an expanding web of currency-swap lines linking China’s central bank to those of Thailand, Malaysia, Indonesia and Laos. Regional payment integration, from QR-code systems to China’s CIPS network, has further lowered the costs of non-dollar settlement. In effect, even without a formal clause in ACFTA 3.0, financial integration is accelerating beneath the surface, quietly reducing the region’s dependence on the US dollar and giving Beijing additional insulation from Washington’s sanctions toolkit.
The upgraded pact is, therefore, firmly grounded in pragmatism. More importantly, it signals an even deeper structural integration between both players going forward. Each new clause on digital standards, environmental goods, or supply-chain facilitation directly lowers the political cost of economic intimacy with China. It makes “de-risking” from China harder in practical terms: disentangling supply chains, retooling standards, and redirecting exports are expensive, time-consuming, and disruptive once such structural integrations in in place.
Regardless of the extent of US business with Asean and its future potential, the Asean members understand how unpredictable Washington has been and likely will continue to be. Trade ties and pacts with China, on the contrary, offer a direct sense of predictability—something that Asean states prefer more than anything else. The deal codifies rules on digital trade, supply‑chain connectivity, and green-economy goods, providing legally binding frameworks that businesses and governments can rely on and plan around.
In contrast, US trade policy has become a major source of volatility. Several Southeast Asian countries have expressed alarm over “adverse impact and uncertainty” stemming from Washington’s tariff threats. Thailand’s central bank governor recently said the degree of uncertainty from US tariff policy is “very high.” For Asean economies that depend heavily on trade and investment, reliable rules, even with China, are more valuable than loud promises from the US.
For Washington, ACFTA 3.0 presents a subtle but profound challenge. US influence in Southeast Asia has traditionally relied on trade access, investment, and defense partnerships. Yet, by embedding Asean deeper into its own economic ecosystem, China reduces Washington’s ability to shape policy through coercion or tariff threats.
Supply chains, digital standards, and green-energy agreements now give Beijing a structural advantage, one that can’t be undone with speeches or one-off tariff adjustments. In effect, Asean’s integration with China lowers the cost of alignment for Asean and raises the cost of misalignment for the US.
The lesson for US policymakers is unambiguous: if Washington wants influence in Southeast Asia, it must offer real, enforceable incentives, not empty assurances. In practical terms, it means negotiating multi-year trade agreements with clear tariff schedules for key sectors such as electronics, renewable energy components, and agricultural exports, along with enforceable dispute-resolution mechanisms that reduce uncertainty for exporters.
Market access should be made predictable through long-term government procurement contracts, simplified customs and digital certification procedures, and sectoral support for technology and green industries. Infrastructure financing must also be reliable and substantial.
The US could, for example, co-finance regional port expansions in Indonesia, logistics hubs in Vietnam, renewable energy grids in Thailand, and cross-border digital networks across Asean, with multi-year low-interest loans paired with technical assistance in project management and environmental compliance.
By offering this combination of rule-based trade, dependable market access, and patient infrastructure investment, Washington could demonstrate the same level of predictability that Beijing provides today, giving Asean states a real reason to maintain strong ties with the US rather than simply hedge toward China.