Before we jump into the noise of tariffs and trade wars, let’s step back and understand the foundations of global trade — Free Trade Agreements (FTAs). Why? Because every headline about tariffs is, in many ways, a reaction to the world built by FTAs.
Free Trade Agreements, at their simplest, are treaties between countries that reduce or eliminate tariffs, quotas, and import/export restrictions. But their impact runs deeper than just cutting taxes at the border. FTAs aim to create predictable, transparent, and fair trading environments, unlocking opportunities for businesses, investors, and consumers alike.
Today, there are over 350 active regional trade agreements globally, according to the World Trade Organization (WTO). Some of the largest include the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the African Continental Free Trade Area (AfCFTA), and of course, the ASEAN Free Trade Area (AFTA), which has been a catalyst for Southeast Asia’s transformation over the past two decades.
Southeast Asia is a poster child for what smart free trade policy can achieve. A region of 10 nations, ASEAN has successfully positioned itself as a central node in global supply chains. Intra-ASEAN trade reached $856 billion in 2023, making it one of the world’s largest single markets. ([ASEAN Secretariat, 2024])
HSBC forecasts Southeast Asia’s economy to grow at a compound annual growth rate (CAGR) of around 5% through 2025, driven by its open trade architecture, youthful demographics, and digital transformation.
FTAs have also helped insulate Southeast Asia from global shocks. Even during the pandemic, the region signed the Regional Comprehensive Economic Partnership (RCEP) — the world’s largest trade deal, covering 30% of global GDP and population. According to the World Bank, RCEP could lift global trade by $500 billion annually by 2030.
The benefits of FTAs go beyond cheaper goods. For businesses, FTAs provide clarity: common standards, simplified customs procedures, and rules of origin that streamline complex supply chains. For example, under the ASEAN Trade in Goods Agreement (ATIGA), over 98% of tariffs have been eliminated across member countries.
Additionally, FTAs often include provisions that attract foreign direct investment (FDI). Southeast Asia has benefited massively here: FDI inflows to the region hit $224 billion in 2023, with MENA investors playing an increasingly visible role (UNCTAD World Investment Report, 2024).
Middle Eastern sovereign wealth funds like Mubadala (UAE), QIA (Qatar), and PIF (Saudi Arabia) have been actively channeling billions into Southeast Asian tech startups, digital infrastructure, and green energy initiatives. The UAE alone secured several CEPAs with ASEAN economies in recent years, reducing barriers for Emirati businesses eyeing expansion in the region.
Despite their benefits, FTAs aren’t perfect. They create winners and losers. Industries exposed to global competition may struggle, especially if they lack scale or innovation capacity. For instance, U.S. manufacturing sectors have long criticised FTAs like NAFTA (now USMCA), arguing they contributed to factory closures and job losses in certain regions.
A 2023 Pew Research survey found that 59% of Americans believe FTAs are good for the country overall, but concerns about outsourcing and domestic job impacts persist. In Southeast Asia, while the macro benefits of FTAs are clear, small and medium enterprises (SMEs) sometimes find compliance with complex “rules of origin” burdensome.
There’s also a geopolitical dimension. Some countries worry about FTAs diluting their ability to set independent policies on labor rights, environmental standards, and data privacy. Civil society groups have raised concerns about clauses in trade deals that allow corporations to sue governments over regulations they deem harmful to profits.
This brings us to tariffs — the flip side of FTAs. When U.S. President Donald Trump launched his tariff campaign against China in 2018, it marked a sharp turn toward protectionism. The rationale was clear: shield American industries from foreign competition, particularly in sectors like steel, aluminum, and technology.
By mid-2019, tariffs covered more than $360 billion worth of Chinese goods, prompting retaliatory measures and triggering a full-blown trade war. According to the Peterson Institute for International Economics, these tariffs increased the average U.S. tariff rate from 1.6% to 6.5%, the highest in decades.
But tariffs come with costs. The U.S. Congressional Budget Office estimated that the Trump-era tariffs reduced U.S. GDP by 0.3% in 2020, costing the average American household around $1,200 annually in higher prices. ([CBO, 2021])
Global supply chains are so intertwined that tariffs often boomerang: raising costs for local businesses and consumers alike. In contrast, FTAs aim to create “win-win” situations, albeit imperfectly, by fostering competition and collaboration.
Southeast Asia has largely bet on free trade, and so far, it’s paying off. The region’s integration into global value chains, from electronics to textiles, has been accelerated by smart deployment of FTAs. For instance, Vietnam’s strategic use of trade agreements has helped it become the second-largest exporter of smartphones globally, after China.
This openness has also made the region a magnet for Middle Eastern capital. The Damac Group from the UAE recently announced a $3 billion investment in Southeast Asian data centres, positioning itself to capitalise on the region’s digital boom.
Southeast Asia’s approach reflects a pragmatic recognition: rather than retreat behind tariff walls, it’s better to build bridges — with both Western economies and emerging partners in the Middle East and Africa.
As we observe the shifting trade winds, one thing is clear: the global economy is not moving away from globalisation, but toward selective globalisation. Countries are recalibrating their supply chains, choosing trusted partners, and balancing openness with resilience.
FTAs are not panaceas, but they remain powerful tools for economic growth and integration. Tariffs, while politically expedient, often hurt the very consumers and industries they aim to protect. The real art lies in knowing when to open doors and when to reinforce them.
For Southeast Asia — and for MENA investors eyeing the region — the answer seems clear. Build the agreements. Forge the partnerships. And let trade, not tariffs, drive prosperity.
