Global Trade Uncertainty Emerges as Key Risk for ASEAN Economic Growth

As global trade tensions rise and fall, a quieter force is shaping Southeast Asia’s economic future: uncertainty. A new study by the International Monetary Fund’s Asia and Pacific Department, authored by economists Sandile Hlatshwayo and Aishwary Trivedi, takes a closer look at how unclear and shifting trade policies are affecting ASEAN economies. The findings suggest that uncertainty itself, not just policy changes, has become a major driver of growth, investment, and stability in the region.

Not All Uncertainty Is the Same

The study breaks away from earlier research by showing that trade policy uncertainty is not one single problem. It separates uncertainty into two types: protectionist measures like tariffs and restrictions, and uncertainties around trade agreements and negotiations. It also looks at where the uncertainty comes from, whether it is domestic or from foreign trading partners. This distinction is important because ASEAN countries are deeply connected to global supply chains, making them highly sensitive to developments abroad.

External Shocks Hit the Hardest

One of the most important findings is that uncertainty coming from outside ASEAN has the biggest negative impact. When major economies introduce tariffs or create confusion around trade rules, ASEAN countries feel the shock quickly. Investment slows, businesses delay decisions, and consumers spend less. While some countries may briefly benefit from shifts in trade flows, these gains are usually short-lived. The overall effect is a slowdown in economic growth, driven by weaker demand at home.

Domestic Policies Can Add to the Pressure

Uncertainty created within ASEAN countries also affects their economies, though in a slightly different way. When governments signal protectionist policies, exports tend to decline and inflation begins to rise. This combination can create a difficult situation where growth slows while prices increase. Such conditions make it harder for policymakers to respond effectively, as they must balance the need for growth with controlling inflation. The study highlights that even domestic policy signals can have strong ripple effects across the economy.

Trade Deals Bring Mixed Outcomes

Interestingly, not all uncertainty leads to negative outcomes. When uncertainty is linked to potential trade agreements, it can sometimes boost short-term economic activity. Businesses may invest early, hoping to benefit from new opportunities if agreements are finalized. However, this optimism often fades over time. If negotiations take too long or fail to deliver results, the initial investment slows down, and the expected gains do not fully materialize. In the long run, these effects tend to be temporary rather than lasting.

Openness as a Safety Net

The study also finds that more open economies are better able to handle uncertainty. Countries with strong trade links and diversified partners can adjust more easily when disruptions occur. They can shift exports, find new markets, and maintain economic activity even during global shocks. This flexibility acts as a buffer, reducing the overall impact of uncertainty. For ASEAN nations, maintaining openness and diversification appears to be a key strategy for resilience.

Overall, the IMF study sends a clear message. Trade policy uncertainty is not just background noise in the global economy, it plays a central role in shaping outcomes. External shocks are especially harmful, but domestic policies also matter. While some uncertainty around trade agreements can create short-term opportunities, lasting stability depends on clear and predictable policies. For ASEAN economies navigating an uncertain global environment, managing this uncertainty may be just as important as managing trade itself.