With a rapidly increasing population of 700 million, the economic growth of the trading bloc of eleven Southeast Asian nations (ASEAN) continues to advance at an annual rate of 5 percent.

The group’s flexible organizational structure helps to maintain economic, political and social cohesion – without pretensions of becoming a monetary union or a regional military power attached to global security alliances.

That, however, does not mean there are no serious challenges, some of which date back to poorly marked, or missing, border lines during colonial times. But even in those cases, ASEAN seeks peaceful solutions to protect lives and property, and to make sure that its members meet the association’s requirements.

The small island nation of Timor-Leste, with a population of 1.4 million, negotiated its independence from Indonesia in 2002. It soon got an ASEAN observer status and spent two decades to complete its association process and become a member state in October of 2025.

Complex ethnic compositions also create sometimes difficult internal problems. In the case of an ASEAN country that still struggles with such issues an external observer suggested punishing economic and political measures. The association’s answer was: We don’t do sanctions.

China takes lion’s share of Asian trade

Indeed, ASEAN wants peace, free trade and economic development.

China is by far the association’s largest trade partner. Last year, the bilateral trade with China came in at $1.1 trillion, a 7.4 percent increase on the previous year. The trade balance hugely favors China with a $276 billion surplus owing to a 13.4 percent increase of Chinese exports and a small decline of ASEAN’s sales to China.

Trade with ASEAN accounted for nearly one-fifth of China’s total foreign trade in 2025.

Vietnam (an ASEAN member) is now Beijing’s second-largest Asian trade partner (after Japan). Last year, Vietnam ran a nearly $300 billion bilateral trade with China -- a 13.7 percent increase from 2024. That seems to be partly due to China’s allegedly huge trans-shipment trade – as suggested by an implausibly strong 22.4 percent increase of China’s exports to Vietnam.

Japan looks like a big loser in this Asian trade race. Tokyo’s 2025 bilateral trade with ASEAN is estimated at $220 billion – less than one-fifth of China’s trade with Southeast Asia.

The U.S. does much better, but its ASEAN trade during last year was still only about one-half of trade transactions booked by China.

One might, therefore, be tempted to conclude that the Southeast Asia is Beijing’s captive market. And with China’s sophisticated consumer electronics and EV production hitting top gear, Asia’s trade will increasingly become dominated by Chinese businesses.

That will most probably leave Japanese and American companies as niche players in the rapidly growing ASEAN economies.

ASEAN needs to increase intra-regional trade

Political and security frictions will also play a decisive role as perceptions of unstable supply chains and unilateral trade rules affect consumer preferences.

Japan, for example, is caught up in a dangerous hostility spiral with China that Tokyo’s elder statesmen and business delegations used to effectively manage with rounds of Beijing visits in the past. This time is vastly different because Japan’s current government waded into the Taiwan’s status -- stepping over the reddest of China’s red lines.

That fired up bitter memories of Taiwan’s Japanese colonial rule from 1895 to 1945, and of war crimes and atrocities committed during Japan’s occupation of China from 1931 to 1945.

Japan refuses to walk back its belligerent Taiwan statements, continues its military buildup and forges ahead with efforts to revise its pacifist constitution.

Washington is not averse to its Pacific ally’s stronger defense capabilities. But looking ahead to its summit with China next April, the White House is still reported to have suggested to Tokyo a softer China rhetoric.

ASEAN is well aware of geography and transacts its business accordingly. Southeast Asia does not want to take sides in an environment of shifting security faultlines, differing trade policies, China’s contested maritime borders, Japan’s attempts at global repositioning and a precarious 73-year-old standoff on the Korean Peninsula.

The Southeast Asian trading bloc has plenty of room to increase intra-regional trade with appropriate policies of facilitating transborder movements of goods, services and investment flows. That task needs more attention because the share of trade transactions within the ASEAN is only about 25 percent, compared with 60 percent for the European Union and 40 percent for the North American Free Trade Agreement (NAFTA).

Apart from that, ASEAN’s short-term economic outlook is good. Most member country economies have solid fundamentals that will allow space for discretionary demand management.