Hope Is Not a Strategy: Southeast Asia Readies for a Dramatic Shift in Trade Conditions in the New Trump Administration 

For the most part, Southeast Asian markets have spent the past 25 years leveraging diplomacy to good effect as they sought to protect and retain domestic security and trade needs amidst the region’s ebb and flow of geopolitical change. 

Despite recent tensions between China and the United States, and a diplomatic discourse that has put sovereignty front and centre of security discussions worldwide, the red thread of pragmatic issue resolution continues to run deeply through the majority of markets’ policy design. 

But the arrival of a new and emboldened Trump Administration will test that pragmatic resolve.  

It brings with it a level of uncertainty that is unsettling political and business leadership, and until they can decipher between election hubris and bona fide policy fact, it will be difficult for them to craft a position that goes beyond generic neutrality. 

Decline in Global Trade

As the smallest nation state in the region, Singapore relies heavily on a rules-based multilateral order. No surprise then that the ambiguity of future U.S. foreign policy is so unnerving for a country that already cooperates with it on a full range of security issues. Concerns about the impact of a projected long-term decline in global trade on its position as a global trading hub have only added to a fast-emerging sense of national uncertainty 

Singapore is not alone in its growing concern about U.S. trade policy. Across Southeast Asia, it is fast becoming the central issue against which economies will be the perceived winners and losers of an incoming administration that has already dialled up the rhetoric on tariffs as a key pillar of economic policy. With the promise of 60% tariffs imposed on goods and products from China, and up to 20% impacting those originating from other markets, the stakes are high. 

Collectively, Southeast Asian markets have a trade surplus of USD 200 billion with the United States, an imbalance that Trump has already placed squarely in his crosshairs. Given the fact that the U.S. is now the region’s largest export market with 15% of all goods heading to the country, the response to the incoming administration’s policy is all the more acute. 

Thailand and Vietnam account for 70% of that surplus and they are moving quickly to shore up their position. The fact that Trump looks set to withdraw from the Indo-Pacific Economic Framework (IMEF), creating an environment in which bilateral agreements between individual economies will reshape the relationship between security, trade and investment decisions, is forcing them to rethink their strategic position on a number of inter-related issues. 

Thailand

In Thailand, finding the balance between forecast shifts in U.S. trade policy whilst maintaining neutrality in geo-political relations reflects a challenge seen in other markets. In the midst of a program of measures aimed at restimulating a faltering economy, the prospect of an “America First” trade protectionist policy that triggers a slowdown of inward investment and negatively affect exports is a real concern. 

The Thai government’s “30/30” policy, in which 30% of all vehicles produced in Thailand by 2030 are electric, is a case in point. Whilst doubling down on the development of a key industry that supports future economic growth, a strengthening U.S. dollar would trigger capital outflows that could easily prohibit the extension of government subsidies designed to underpin the sector.  

At the same time, diversifying interests to those sectors where U.S. policy has already triggered a decoupling from China—including health foods, agriculture, semiconductors and solar technology—has the potential to strengthen export opportunity elsewhere. 

It’s a scenario that has accelerated discussion on the diversification of trading partners across the Association of Southeast Asian Nations (ASEAN), Europe and the Middle East, prompted the establishment of Free Trade Agreements (FTAs) and turned attention to those industry sectors where the country has an existing competitive edge when compared to other Southeast Asian markets.  

What all Southeast Asian markets are grappling with is the response the Trump Administration might have to similar efforts to diversify and navigate through the worst tariff scenarios. The variables between Trump’s sound political and commercial judgement and hard-edge deal-making have always been difficult to measure. As those in the region now watch the rollout of several controversial cabinet nominees, any certainty about how the new Administration will respond has all but evaporated. 

Vietnam

Vietnam faces an equally challenging balancing act as it looks to benefit from U.S. restrictions on Chinese technologies, specifically semi-conductors, whilst maintaining a long-standing legacy relationship with the Xi Administration.  

It has seen recent burgeoning economic and trade cooperation with Beijing, backed by strong security commitments between the two countries. But it sees itself as a key player in a future technology supply chain and is keen to develop the seeds of a positive relationship with Trump.   

Vietnam also knows that Trump has personal business interests in the country, which they assume he will want to protect. The announcement last month of the Trump Organization’s USD 1.5 billion hospitality and golf complex in Hung Yen province (home of Tô Lâm, General Secretary of the Communist Party), coupled with Elon Musk’s Starlink investments in the market, make it hard to see an aggressive stance against the country. 

But Vietnam knows that it has the largest U.S. trade surplus in the region (USD 100 billion) and it will be too presumptive to assume that Trump’s commercial interests would protect it from the impact of U.S. economic and foreign trade policies. 

Indonesia

In Indonesia, recently elected Prabowo Subianto is treading a paper-thin diplomatic path of his own, as he navigates his country’s relationship with the world’s two largest economies. With a non-aligned foreign policy in play, he’s been visible in his efforts to work with both the United States and China on a range of trade related investments.   

But Indonesia’s very public alignment with the United States on defence and security issues, most notably through annual shared military exercises, make its USD 40 billion trade relationship ties with China more precarious than it may otherwise want. A focus on critical minerals, key to China’s own domestic growth needs, will soften the impact of its security relationship. 

Beyond trade and security, the Gaza conflict remains a major concern in Indonesia. While Trump is perceived as pro-Israel, widespread disillusionment with Biden over the war has strengthened the view that the United States will support Israel irrespective of who is in office. However, if Trump is seen as actively supporting a further escalation of violence in the Middle East—and specifically against Palestinian interests—the issue could quickly lead to an escalation in tensions. 

The fact that Trump has shown himself to be less receptive to criticism about his policies than Biden means the Indonesian balancing act on foreign and economic policy looks vulnerable. 

Malaysia 

As a predominantly Muslim country (65%), the response of the Trump Administration to the Israel-Palestine issues means Malaysia faces public perception challenges similar to those seen in Indonesia. But two issues complicate that situation further. 

Newly appointed President Anwar has already taken significant steps to enhance Malaysia’s relationship with Beijing, praising China’s values and promotion of the welfare of humanity. And as a rebuff to the weight of U.S. influence, he publicly rejected a push from the current Administration to distance the country from its bilateral ties with Russia. But the country also has strong ties with U.S. companies as a supplier of electronic and technical components, and the promise of contracts worth billions of dollars. It too needs to balance competing interests between trade and security partners. 

That situation will be exacerbated further in 2025 as Malaysia takes on the ASEAN presidency. It has been quick to promote a theme of “Inclusivity and Sustainability” as it prepares to take on the role, supporting the notion of consensus between ASEAN markets as they support a secure and economically stable future. But it knows too that a Trump Administration has a track record in promoting volatility between competitive markets as it seeks to develop bilateral trade agreements in which, inevitably, some markets benefit more than others. 

And therein lies the issue for much of Southeast Asia as it prepares for a new Trump Administration. As each economy looks to minimise the impact and maximise the potential of a reshaped trade and security relationship with the United States, so it must adjust its perspective on the competitive jockeying of its regional neighbours as they prioritise the interests of their own citizens too. 

In Southeast Asia, the concept of “America First” may yet prove to be contagious.