Can ASEAN export growth survive US trade scrutiny?

On 11 March 2026, the Office of the United States Trade Representative (USTR) launched a Section 301 investigation into “structural excess capacity or production in certain manufacturing sectors”. While the investigation is still ongoing, its scope is not limited to China. It covers 16 economies, including Japan, the EU and South Korea, as well as seven ASEAN countries: Singapore, Indonesia, Malaysia, the Philippines, Cambodia, Thailand and Vietnam.

The US believes that factors such as subsidies, policy-driven financing, state-owned enterprises and market access barriers may cause production capacity to become disconnected from market supply and demand. However, the investigation is not confined to such non-market interventions. Large trade surpluses, low capacity utilisation and idle capacity are also cited as signs of “structural excess capacity”. The sectors covered include automobiles, batteries, semiconductors, steel, chemicals, electronics, machinery, solar panels and shipbuilding. The question, however, is how far this definition will ultimately extend.

Is production for export truly ‘excessive’?

There is a certain risk inherent in this debate. If “producing more than can be consumed domestically” is itself regarded as a sign of excess production, even legitimate export-oriented production could come under scrutiny. For countries with relatively small domestic markets, building production capacity beyond domestic demand to serve the global market is, in fact, a natural feature of export-oriented industrialisation (EOI). Thailand’s automotive industry, Malaysia’s electrical and electronics industry and Vietnam’s mobile phone industry, for example, have all developed on the premise of exporting to global markets. For ASEAN, exports are not a means of disposing of surplus products; they are themselves a growth strategy for achieving economies of scale and advancing industrialisation.

In the current Section 301 investigation, the line between correcting unfair industrial policies and interfering with EOI remains blurred. For ASEAN, this is precisely where the problem lies.

Structural excess capacity should not be deemed to exist merely because production exceeds domestic demand or because a country runs a trade surplus. What should really be examined is whether production capacity is aligned with global demand, whether production can be profitable at market prices, and whether investment can adjust to changes in demand. Trade balances are determined not only by industrial policy, but also by a range of macroeconomic factors, including savings, investment, fiscal policy, exchange rates and domestic consumption. The International Monetary Fund (IMF) has also pointed out that attributing external imbalances solely to industrial policy provides an incomplete explanation.

Of course, there is a genuine problem if governments use support measures to keep unprofitable production facilities operating and then push the resulting surplus goods onto overseas markets at low prices. In China’s case, some have also argued that state-led investment and industrial policies have created excess supply in certain sectors and reduced the sustainability of export-dependent growth.

How to evolve export-oriented growth

The path ASEAN should take is not to abandon export-oriented industrialisation, but to upgrade it. The focus of development also needs to shift away from simply expanding the volume of exports towards a growth model that places greater emphasis on regional value added, productivity, wages, technology transfer and the participation of local companies.

To achieve this, ASEAN needs to advance the harmonisation of non-tariff measures, standards, certification and customs procedures, bringing the markets of its 11 member states closer to a genuinely unified ASEAN market. It should also expand intra-regional sourcing of components and raw materials, develop higher-value-added activities such as research and development, and translate profits generated by exports into higher incomes and stronger demand within the region.

The US should draw a clear distinction between export-oriented production that meets global demand and structural excess capacity sustained through government intervention.

At the same time, ASEAN cannot simply maintain its traditional model of export-oriented industrialisation. What is being tested today is not the volume of exports, but how much value added, technology and income can ultimately remain within the region.

What ASEAN needs to demonstrate is that it is neither a destination for absorbing excess production from China and other countries nor a hub for circumventing export restrictions, but a production region capable of developing its own industrial capabilities and creating its own value added. Export-oriented industrialisation itself is not under criticism. What is truly being tested today is the quality of that industrialisation.

Related: China needs a new strategy to rebalance its industrial might | Why are China’s store prices lower than online? The overcapacity puzzle