How the US tariff war can help the EAEU-ASEAN cooperation

Anti-Russian sanctions play a dual role: on the one hand, they push RUSSIA and the countries of the Eurasian Economic Union (EAEU) to develop trade relations with the Association of Southeast Asian Nations (ASEAN), and on the other hand, they create serious restrictions on economic cooperation. This conclusion is contained in the working notebook of the Russian International Affairs Council (available to RBC). The main challenges in the area of cooperation between the two associations are related to the threat of secondary sanctions and difficulties in conducting mutual settlements due to the lack of the necessary financial infrastructure and increasing pressure on banking organizations in the countries of Southeast Asia.

ASEAN was established in 1967 and comprises ten Southeast Asian countries: Brunei, Vietnam , Indonesia, Cambodia, Laos, Malaysia, Myanmar, Singapore, Thailand and the Philippines. The EAEU was formed on January 1, 2015 and includes Armenia, Belarus, Kazakhstan , Kyrgyzstan and Russia . In 2018, a Memorandum of Understanding was signed between the Eurasian Economic Commission (the EAEU's regulatory body) and ASEAN.

Russia remains the main “contributor” to the foreign trade turnover of the EAEU without alternative, and therefore changes in Russian trade caused by sanctions and other external shocks (for example, the pandemic)covid-19 ) have affected the trade turnover of the entire union with ASEAN, explains the author of the report and Deputy DIRECTOR of the Center for Comprehensive European and International Studies (CCEIS) at the National Research University Higher School of Economics Alexander Korolev. The trade connectivity of the EAEU and ASEAN was initially extremely low, but it still decreased under the influence of anti-Russian sanctions: the share of the EAEU in ASEAN's foreign trade in 2023 was 0.5% versus 0.7% in 2018, and the share of ASEAN in the EAEU's trade was 2.1% versus 2.5% in 2018.

The tightening of sanctions has also changed the structure of the EAEU's exports to ASEAN. In 2023, the share of mineral raw materials increased to 65.5% (from 45% in 2021). Exports of ferrous metals have more than halved - from $2 billion in 2021 to $832 million in 2023, and hot-rolled steel has completely disappeared from supplies, while in 2021 its supply volume was $484 million. The latter is due to the growing demand for metal products in Russia, the fall in world prices for hot-rolled steel and China's expansion into ASEAN markets, primarily Vietnam.

Economic shocks from the fighting reduced ASEAN exports to the EAEU by 1.5 times: from $8 billion in 2021 to $5.3 billion in 2023. The largest drop — almost threefold — occurred in the “electric vehicles and equipment” category (from $2.7 billion to $889 million). At the same time, Kazakhstan’s share as an importer of electric vehicles from ASEAN increased to 52.5% (versus 36.7% for Russia). Similarly, smartphone imports to Kazakhstan increased from $180 million in 2018 to $600 million in 2023, while they almost stopped in Russia. Korolev attributes this dynamic to the parallel import mechanism.

At the same time, ASEAN exports of nuclear reactors, boilers, machinery and mechanical devices increased by 40%, and bearings by 83%, driven by Russia’s desire to replace departed Western suppliers. Shipments of aircraft and components (mostly from Thailand) also increased, from $70.5 million in 2021 to $148.5 million in 2023.

In addition to anti-Russian sanctions, the key factors limiting the potential for cooperation, according to Korolev, are the following:

• high competition for sales markets in the countries of Southeast Asia;
• underdeveloped transport and logistics infrastructure between the EAEU and ASEAN countries;
• insufficient awareness in ASEAN countries of the business processes and regulatory norms of the EAEU.

Despite this, the EAEU has the potential to increase exports to ASEAN of such goods as pork , aluminum and aluminum products, seafood, inorganic chemicals , and polymers. In 2023, exports of these goods from the EAEU increased compared to 2022, Korolev notes. In addition, the free trade agreement with Vietnam, concluded in 2015, provides for the removal of tariff duties on another 30% of goods by 2027, which may allow the EAEU and, first of all, Russia to increase supplies of coal, wheat, and MEAT to this Asian country.

In addition, the EAEU and ASEAN can exchange experiences. The EAEU can adopt ASEAN’s approaches to multi-speed integration, allowing individual countries to join agreements later if there is consensus among other members, as well as methods for overcoming regulatory desynchronization that arises due to simultaneous participation in several economic blocs and free trade agreements. ASEAN can study the EAEU’s experience in developing common markets and crisis management.

The foreign policy situation could become a key incentive for strengthening trade and economic ties. The report notes that until 2025, discussions on the development of relations between the EAEU and ASEAN focused on formats and projects proposed by the union, and especially Moscow, aimed at countering Western sanctions and creating alternative supply chains. However, at present, ASEAN countries have become one of the main targets of the trade war unleashed by Donald Trump, who has returned to the presidency: the average weighted tariff for the association's member states has reached 30%.

The US "reciprocal" tariffs on ASEAN countries amounted to:

• Cambodia - 49%;
• Laos - 48%;
• Vietnam - 46%;
• Myanmar - 44%;
• Thailand - 36%;
• Indonesia - 32%;
• Brunei - 24%;
• Malaysia - 24%;
• Philippines - 17%;
• Singapore - 10%.

ASEAN countries almost immediately began negotiations with the American administration and may reach a compromise agreement on new terms of mutual trade and tariff revision, Korolev notes. "However, it is important to understand that any deals with the Donald Trump administration can be revised or cancelled at almost any time. Against this background, additional opportunities are emerging for the EAEU countries," the expert believes.

At the same time, Southeast Asia is not among the EAEU's priority partners, and for Armenia and Kyrgyzstan it serves as a channel for parallel imports to Russia. For ASEAN, the EAEU is one of many promising partners, significantly inferior to CHINA, Korolev emphasizes. The expert suggests recognizing that the EAEU cannot achieve indicators comparable to other ASEAN trading partners such as Japan and India, but is quite capable of occupying niche markets in Southeast Asia in competitive sectors - the agro-industrial complex, energy, and the chemical industry. The expert calls this concept a "sectoral strategic partnership" as opposed to the current "faceless integration."

By the end of 2025, an FTA agreement between the EAEU and Indonesia is expected to be signed, but in the near future, new agreements with other ASEAN countries are unlikely, Korolev believes. According to the expert, in the practical field, the EAEU should focus on raising awareness of ASEAN countries about the union's business processes.

This can be facilitated by the participation of Asian companies and associations in Russian business forums, an increase in the number of such events and the holding of off-site events in Southeast Asia - with the involvement of both representatives of more traditional (transport, energy, agriculture ) and new areas of cooperation (green energy, digitalization, artificial intelligence ). "In addition, the aggressive tariff policy of the Donald Trump administration creates the preconditions for strengthening the dialogue between the EAEU and ASEAN in the format of exchanging experience and discussing joint measures to counter the negative consequences of trade wars," the document says.