Southeast Asia Braces for Impact of Trump 2.0 Trade Policies

The resurgence of reciprocal tariffs by the Trump 2.0 administration is poised to significantly reshape trade and investment dynamics in Southeast Asia, with countries like Vietnam and Cambodia potentially facing the brunt of these economic maneuvers. The region now confronts a complex landscape filled with uncertainty and the need for strategic navigation.

Tariffs and Trade: A Looming Challenge

On April 2, 2025, the Trump 2.0 administration declared sweeping reciprocal tariffs intended to eliminate the US trade deficit with individual nations. This action, which the former US President **Donald Trump** labeled “Liberation Day,” has particularly affected Southeast Asian countries. Among those most impacted are Cambodia, Laos, Vietnam, and Myanmar. While a temporary 90-day pause in tariffs offered a respite, this period is set to expire in early July.

Navigating Negotiations

As the 90-day pause nears its end, specific details about negotiations with Southeast Asian countries remain scarce. Reports suggest that the US prioritized talks with twenty countries, including Vietnam, Malaysia, and Indonesia. Before the July 9 deadline, letters outlining unilateral tariff rates are expected to be sent out.

With a Malaysian proposal for an ASEAN-US Summit failing to materialize, other countries have been left to make individual offers. The de-escalation between the US and China following the Geneva meeting may be temporary. The US continues its aggressive unilateral actions, such as doubling steel tariffs, further complicating the situation.

The “reciprocal tariffs” were set to exploit a country’s reliance on the US market by focusing on exports compared to imports. This has led to higher tariffs for the poorest countries in Southeast Asia: Cambodia (49 percent), Laos (48 percent), Vietnam (46 percent), and Myanmar (44 percent).

The formula used to set the inappropriately termed “reciprocal tariffs” is designed to exploit the dependence of a country on the US market by focusing on exports relative to imports, explained **Menon**. This has led to unequal bargaining power.

China’s Influence

Southeast Asia faces a potential surge in Chinese exports as China seeks alternative markets due to US market access constraints. Since 2019, Southeast Asia’s imports from China have outpaced intra-regional imports. Cheap Chinese imports could accelerate Southeast Asia’s deindustrialization, however, they also lower costs for downstream industries, helping contain prices. Raising trade barriers is not an optimal solution.

Multinationals and Supply Chains

Multinational corporations in the region would typically respond to the US-China trade war by increasing the diversification of their supply chains away from China. However, the **Trump** administration’s shifting approach to tariffs and policy uncertainty have made these decisions more complicated.

The option of relocating to the US to avoid tariffs is challenging due to labor shortages, a limited domestic supplier base, tariffs on upstream imports, and the risk of retaliatory measures. As a result, firms will not be able to onshore manufacturing rapidly, which would lead to production bottlenecks and higher costs. Firms might continue to reconfigure their supply chains or embrace a “build-where-you-sell” strategy to separate the US and Asian supply chains.

Technology’s Shifting Landscape

Despite the uncertainties of the Trump 2.0 era, US tech companies continue to dominate in various sectors. American multinational companies have a vested interest in ensuring fair and open trade and trustworthy relationships with ASEAN trading partners.

Clearly, no country wants to have to choose sides in the US-China geopolitical rivalry, stated **Capri**.

The “AI-Semiconductor Nexus” will determine the agency of “middle countries” like Singapore in the future. The weaponization of advanced semiconductor supply chains by Washington, particularly the equipment needed to make them, is critical. If Washington maintains its control, a binary choice may be inevitable for affected ASEAN countries like Malaysia, Vietnam, and Singapore.

Intra-ASEAN Cooperation

To counteract the adverse effects of trade tensions, intra-ASEAN trade and investment can offer a solution. During the aftermath of Covid-19, intra-ASEAN trade and investment proved more resilient and recovered faster. These regional supply chains give complementarity and collective competitiveness, which enhances resilience.

The upgraded ASEAN Trade in Goods Agreement should address persistent non-tariff measures and emerging issues. ASEAN should advance the implementation of the ASEAN Trade in Services Agreement and the ASEAN Services Facilitation Framework. According to the ASEAN Secretariat, intra-ASEAN trade increased by 17.5% in 2023. The focus should be on quality and sustainable investment to seize the opportunities as global firms restructure their production networks.

Financial Implications

Rising geopolitical tensions have led to a reconfiguration of trade and foreign direct investment (FDI), with a growing role for “friend-shoring” and connector countries. This is evident in the shift in FDI patterns, with the share of ASEAN in global FDI rising. Geopolitical tensions also raise concerns over the potential weaponization of finance, as seen in sanctions on Russia. Countries are exploring alternatives to Western-led payment infrastructure (such as SWIFT) and the US dollar (USD).

ASEAN has promoted local currency settlement in trade and investment over the past decade. Geopolitical pressures are likely to accelerate this push. Many ASEAN countries are actively diversifying FX reserves and initiating regional payment connectivity, where cross-border transactions can be settled in local currencies, which is contributing to local currency usage. However, in May 2024, the USD accounted for 59% of global foreign exchange reserves, according to the IMF.

Political Ramifications

In global elections, anti-incumbency sentiment is significant, fueled by issues like housing unaffordability and the high cost of living. There is a “Trump effect,” where parties associated with the US president risk losing voter support. This dynamic appears in countries with similar political, economic, and cultural profiles as the US. For most of Asia, dissatisfaction with the status quo will remain a dominant political theme.

Most policymakers recognize the risks of relying on the US for security or China for economic growth. Over the decade, there will be a push around diversification for trade, as well as diplomatic and geopolitical ties. Governments will attempt to capitalize on this non-alignment push while hedging against future risks. “Beggar-thy-neighbour” policies could be a tempting way to offset volatility, such as aggressive currency management or subsidies to attract investment into local supply chains.