By Citra Nasruddin, Programme Director for Tech For Good Institute

In April 2025, U.S. President Trump renewed trade challenges by imposing tariffs of up to 49% on electronics, machinery, and raw materials from six ASEAN countries. While these measures aimed at physical goods, their impact quickly reached the digital sphere. Cloud computing, online retail, and smart manufacturing rely on affordable hardware, so tariff-driven price hikes or customs delays immediately slow digital services. A U.S. court later ruled the tariffs unlawful, offering relief but leaving open their possible reinstatement, underscoring how even brief hardware restrictions can disrupt digital trade in ASEAN.

Tariffs, however, are often just the opening move in a larger trade dispute. They can trigger demands for data to be stored locally, stricter licensing requirements for foreign digital firms, or even forced transfers of proprietary technology. These measures create additional hurdles for businesses that rely on seamless cross-border data flows, threatening ASEAN’s digital transformation and eroding consumer trust in online services.

The Rise of DEFA Amid Global Trade Tensions

To address these growing risks of digital fragmentation, ASEAN has been negotiating the Digital Economy Framework Agreement, or DEFA, since 2023, with the goal of concluding talks by the end of 2025. DEFA is not a World Trade Organisation (WTO) treaty; rather, it is a regional agreement focused specifically on digital trade. Its purpose is twofold: to simplify the movement of digital products and services across borders and to guard against protectionist policies that could disrupt the flow of data and digital activity.

One way DEFA achieves this is by establishing shared standards for digital transactions. Instead of each country using its own system for electronic invoicing, digital IDs, or customs declarations, it proposes a unified approach. Whether operating in Jakarta, Bangkok, or Manila, businesses can increasingly follow consistent, harmonised rules. This common framework helps ensure that, even amid disruptions to physical trade, companies can continue maintaining core digital operations such as processing payments, verifying customers, and filing declarations with minimal friction.

Behind these practical steps lie important legal commitments. In a statement on September 5, 2023, ASEAN leaders endorsed guiding principles for DEFA, emphasising fairness, openness, and transparency. They also signaled their intent to include rules similar to the WTO’s Most-Favored-Nation and National Treatment, which require members to treat foreign and domestic products equally. While DEFA final text is not yet public, negotiators are expected to draw on examples from agreements like the Digital Economy Partnership Agreement between Singapore and Australia and Singapore and the UK. Following this model, DEFA would help deter sudden policy shifts, such as retroactive licensing changes or surprise data localisation orders, by making such actions economically and diplomatically costly.

DEFA also covers other areas that shape our everyday use of technology. It aims to protect personal and commercial data through shared privacy safeguards and support cooperation on cybersecurity so countries can share information and coordinate responses to online threats. It is also expected to explore ways to support the movement of digital talent, such as mutual recognising of professional credentials and potential digital visa schemes. Looking ahead, DEFA may include mechanisms to regularly update its rules, helping it stay relevant as new technologies like artificial intelligence (AI) and quantum computing emerge.

Although the 2025 hardware tariffs initially increased costs and caused delays, they also accelerated the shift toward digital solutions. Cloud-native services, which depend less on physical infrastructure, gained momentum. To reduce reliance on cross-border hardware, businesses have also begun investing in local data centres. In a way, the tariff shock catalysed deeper cooperation within ASEAN, as companies and governments collaborated to strengthen digital resilience across the region.

Building a Resilient and Inclusive Digital Economy

The economic potential of a well-designed DEFA is significant. With a combined population of 660 million, ASEAN represents a digital market valued between US$1 trillion and US$2 trillion. A 2024 study by the Boston Consulting Group estimated that a baseline agreement focused on digital trade, payments, and e-commerce could unlock up to US$1.6 trillion in value. A more ambitious plan that includes extensive data sharing, cooperation on emerging technologies, and seamless talent mobility could double that figure to US$2 trillion.

These projections align with the ASEAN 2045, which aspires to make the bloc the world’s fourth-largest economy. The strategy aims to deliver seamless digital connectivity, promote inclusive growth, and strengthen regional security against future protectionist pressures. DEFA’s adaptable governance model, with built-in review cycle and flexible rules, allows each member state to progress at its own pace while contributing to a shared goal.

For Indonesia, where digital products already enjoy zero tariffs under the Harmonised System codes, DEFA offers an opportunity to bring added clarity. It is expected to support greater consistency in how digital content is classified, stabilise licensing processes, and promote data protection standards. This regulatory clarity would give Indonesian startups and service providers the confidence to expand into neighboring markets without the fear of abrupt regulatory changes.

Across the region, stronger consumer protection and competition rules under DEFA would help reassure users that their data and rights are protected when they shop, stream, or learn online. As internet access extends to rural and underserved areas, these safeguards will be essential to ensuring that everyone, regardless of location, can participate in and benefit from the digital economy.

Conclusion

Still, ASEAN faces a delicate balancing act. Member countries must embrace DEFA’s flexible approach without undermining its core commitment of fair and non-discriminatory treatment. They will need to invest in shared digital infrastructure, from undersea cables to national data centers, to turn interoperability from aspiration into a reality. And when political tensions rise, they must resist the urge to resort to protectionist measures that could fracture the region’s digital market.

The central question remains: Can ASEAN’s DEFA serve both as a shield against the unintended consequences of protectionist hardware tariffs and as a springboard for inclusive and resilient digital growth? If ASEAN succeeds in weaving together clear legal commitments, practical technical standards, and an adaptive governance framework, it will not only withstand the shocks of 2025 but also position itself as a global leader in the digital economy.

About the Writer

Citra Nasruddin is Programme Director at the Tech For Good Institute, where she leads research on the responsible and inclusive development of digital economies in Southeast Asia. She is an expert in fiscal policy, financial services, and digital innovation. Prior to joining the Institute, she worked in Indonesia’s public sector, supporting cross-sectoral initiatives with government agencies, international organisations, and the private sector.

The views and recommendations expressed in this article published on August 2025 are solely of the author/s and do not necessarily reflect the views and position of the Tech for Good Institute.