The US shock
The US shock, unlike the China shock, is a demand shock. It refers to the raft of tariffs, sanctions, export restrictions, and investment controls directed not at a single adversary but at all other economies. One example is Vietnam, which had been sending a third of its goods exports to the US and was initially hit with a 46 percent tariff (later changed to a baseline of 20 percent, with 40 percent for some products). Even Singapore and South Korea, which had free trade agreements with the US, suffered tariff actions.
The US shock goes beyond the actions of a single administration. Indeed, most recently, US trade policy has shifted toward fundamental skepticism about trade itself and is no longer using trade restrictions simply as temporary tools to advance wider objectives, such as national development or alliance management.
The US has other grievances. It has accused China of following the letter of WTO rules while violating their spirit. For instance, in 2012–14 China initially justified its rare earth export restrictions on environmental grounds, but it eventually accepted the WTO ruling that the restrictions reserved resources for China’s downstream industries, putting foreign competitors at a disadvantage.
The more serious charge is that China has used its status as a developing economy to exploit gaps and ambiguities in WTO regulations. Thus, concerns about its export prowess have fueled suspicion that China, instead of viewing the rules-based system as an incentive-compatible mechanism, practices what might be called rules-compatible mercantilism.
The multilateralism shock
The multilateralism shock is a system-wide shock. As the US began to repudiate the multilateral order, other advanced economies saw a playing field that was no longer level and began to wield industrial policies to recover their positions. As a geoeconomic mindset settled into national policymaking, gainful economic interdependence turned into threat-laden strategic leverage, and trade morphed from competition over productivity into disputes over chokepoints and the balance of payments.
Rules-based multilateralism came to be seen by many as a costly global public good whose benefits accrue more to others than to their own countries. The US and other developed economies, which initially benefited disproportionately, began to see the cost-benefit ratio deteriorate (Gaspar, Hagan, and Obstfeld 2018). With costs increasingly outweighing benefits, a significant share of countries began to retreat from full support for the system.
As each country seeks to gain an edge over its rivals, the collective effect is a breakdown of the multilateral order, which hurts everyone. Even though more than 70 percent of cross-border trade still follows WTO rules, disruptions to trade by individual nations have risen more than threefold since 2019, IMF Managing Director Kristalina Georgieva has noted. Thus the multilateralism shock looks alarmingly like a classic prisoner’s dilemma or, as Shiro Armstrong and I call it in a 2026 paper, an “epic fail” outcome.
Multilateral enough
The disruption of rules-based multilateralism poses a profound threat to Southeast Asia’s continued development. Research by international relations scholars (for example, Khong and Liow 2025) shows how geopolitical disruption has unsettled trade, diplomatic, and power relations across ASEAN’s member states, which prompts the question: How can the core functions of the old order be rebuilt by non-hegemonic, if strongly incentivized, states? The answer lies in what the IMF and others call “pragmatic multilateralism”: like-minded states forming a coalition to pursue a particular goal, even in the absence of universal consensus.
To succeed, any such coalition must be built around the same three principles we identified earlier as the bedrock of the old system: a level playing field, peaceful dispute resolution, and cooperation in the face of shared challenges. A coalition that meets these conditions is multilateral enough; the larger environment can remain loosely organized.
In other words, the collection of all nations is a flexible topology. Groups can come together to seek treaties and explicit agreements, but no one is forced to do so. A coalition of states with aligned incentives, which leads to unintentional cooperation, is better than a coalition holding on in vain to a binding contract. But either pathway works, as long as the coalition that emerges considers itself multilateral enough.
ASEAN is one such coalition. Not a full multilateral system, it is focused on specific challenges of concern to its members. But it has also been open to new members (it recently accepted Timor-Leste as its newest member). Two other multilateral-enough coalitions are the Regional Comprehensive Economic Partnership, which includes ASEAN plus China, Japan, and South Korea, and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, a more eclectic group that recently added the UK.
Flexible, multilateral-enough coalitions can extend beyond a region or a geographic area. An example is the WTO’s Multi-Party Interim Appeal Arbitration Agreement. Set up in 2020 to settle trade disputes after the WTO Appellate Body ceased to function, it began with 16 signatories and has grown to more than twice that number across six continents.
Core principles
These examples illustrate how, even with the loss of global consensus, Southeast Asia can continue to deploy—and apply in new ways—the principles of a multilateral-enough, flexible topology to advance the best of cooperation and multilateralism. International institutions such as the IMF can play a critical, independent role by keeping new flexible topologies open and inclusive. The world need not ossify into competing spheres of influence; it can be flexibly multilateral.
In the past half-century, Southeast Asia has reaped significant gains from the rules-based multilateral world order: faster growth, more jobs, improved well-being. In return, Factory Asia has provided affordable mass-produced electronics and textiles to the rest of the world.
But today, the world order is shifting toward geoeconomics and strategic interdependence. The China, US, and multilateralism shocks are planet-scale trends not likely to be undone by a single US election or by other personality-based changes in international leadership and policymaking. The core principles of the multilateral system can nevertheless survive in a flexible topology that relies on aligned incentives rather than rigid rules.
