Lessons Learned in a Turbulent Global Trade Climate: Southeast Asia

In April 2025, the United States’ first order of sweeping global tariffs sent shockwaves through Southeast Asian economies, triggering market volatility and forcing rapid strategic reassessments by their governments across multiple industries. The “Liberation Day” tariffs hit Southeast Asian countries with varying severity, with Indochina nations bearing the heaviest burden. Cambodia faced a staggering 49% tariff, followed by Laos (48%), Vietnam (46%), Myanmar (44%), Thailand (36%), Indonesia (32%), Malaysia (24%), Brunei (24%), the Philippines (17%), and Singapore (10%) bearing the baseline tariff.

This disproportionate impact on the Indochina countries is likely a retaliatory tax stemming from their perceived close ties to China, as seen in Cambodia and Vietnam, along with their growing role as alternative manufacturing hubs in Vietnam and Malaysia to circumvent previous U.S. tariffs aimed at Chinese manufacturers.

Even as global markets prepared for the effects of tariffs, the sweeping tariffs on nearly all of the U.S. trade partners surprised many globally, including some of its closest allies. For instance, Vietnam’s 46% tariff greatly affected its semiconductor industry, as these broad tariffs directly threatened its component manufacturing and the production of rare earth materials essential for chip production. Semiconductor manufacturing was also affected in Taiwan, one of the United States’ closest trade partners, where the 32% tariffs did not directly target finished semiconductor chips, but had repercussions for the wider supply chain of servers and related equipment. This looming supply chain impact could accelerate the regional capacity building as Foreign Direct Investments (FDI) in technology production and manufacturing could shift to Southeast Asian countries with lower tariffs exposure, such as Singapore, the Philippines, and Malaysia. These countries are all significant players in the global semiconductor industry, with Malaysia ranking as the 6th largest, the Philippines as the 9th largest, and Singapore contributing approximately 10% to global chip production and 20% to global semiconductor manufacturing equipment production. ABI Research foresees that global semiconductor supply chains may evolve, with foreign investments favoring the three major Southeast Asian semiconductor players over Vietnam and Taiwan.

Although the sweeping “Liberation Day” tariffs have not been fully implemented, as the United States announced a 90-day reevaluation and pause of its reciprocal tariff strategy, the lingering effects of the panic they caused in the market will persist. President Trump’s abrupt implementation of a global tariff strategy has already sent shockwaves, signaling to international trade partners that prioritizing the reduction of the U.S. trade deficit at the expense of established trade norms is becoming increasingly normalized. Southeast Asian countries are directly impacted by this turbulent trade climate, as many of the region’s largest trading partners are the United States and China amid the escalating trade tensions between the world’s two largest economies. The region is currently in a precarious position, as it risks losing the backing of FDI from American and Chinese multinational enterprises due to the impending high reciprocal tariffs.

Even as the tariffs were in effect for a mere 13 hours, one of the key lessons presented to the Southeast Asian region was its need for internal realignment and investment diversification. This largely stems from two main challenges that impact the region’s most vital stakeholders:

• Strategic Uncertainty: Unpredictable tariff shifts make long-term planning strategies increasingly speculative and risky. Regional technology development and investment stakeholders will struggle to build resilient strategies when core materials and export costs fluctuate. If left unaddressed, this uncertainty will continue to permeate the technological ecosystem, hindering its growth potential.
• Overreliance on International Influence: Much of the region’s investment comes from international FDI, rather than regional FDI. Many major companies from the United States and China, including Microsoft, Micron, Amazon Web Services (AWS), Alibaba, and Midea, have made significant investments in technology infrastructure and manufacturing hubs across the region. While the flow of FDI stimulated strong growth across the region, the sudden shifts in trade climate will breed further uncertainty in the region, which may, in turn, lead to less appetite for infrastructure investment from the United States and China due to turbulent trade policies.

Southeast Asian countries should adjust their strategic alignment to address these emerging challenges to ensure future growth potential. These strategic shifts will revolve around these two principles:

• Internal Realignment: As the international trade climate becomes increasingly tumultuous, it is likely that a more viable strategy to divert investment that seeks to nurture technological innovation intra-regionally will be implemented. Focusing on building a strong regional startup ecosystem that builds confidence in technological growth will be a viable strategy for Southeast Asian countries to continually develop their growth potential, while reducing the reliance on U.S.-based Venture Capital (VC) investments to drive innovation. On a local level, governments should also spearhead locally led infrastructure development and improvement, focusing on improving their domestic tech capacity and workforce.
• Investment Diversification in Industry: Diversifying investments in multiple high-potential sectors reduces overexposure to tariff-vulnerable industries like electronics or textiles. Governments should develop a multi-sectoral approach that prioritizes investment in key markets central to capturing further growth potential, such as semiconductors, Electric Vehicle (EV) batteries, and renewable manufacturing. Investments in these key industries will not only enhance high-potential sector development, but will also build supply chain resilience centered around the Southeast Asian region.