Southeast Asia’s response in a second Trump presidency: Exclusive insights from Moody’s Analytics
3 Mar 20256 min read
Summary
- Southeast Asia faces renewed uncertainty as Donald Trump begins his second term, raising the prospect of new tariffs and shifts in global trade alignments. According to Katrina Ell, Head of Asia-Pacific Economics at Moody’s Analytics, export-reliant economies such as Singapore, Vietnam, Thailand, and Malaysia are particularly exposed to the threat of tariffs, while weaker regional currencies and a strong U.S. dollar further complicate monetary policy decisions.
- Ell notes that Southeast Asia’s growing integration into global supply chains has made it indispensable yet vulnerable. The first Trump presidency and the pandemic accelerated diversification away from China, positioning the region as a key manufacturing base for intermediate goods. However, renewed protectionist policies and potential country-specific tariffs risk eroding these gains, especially in strategic sectors like technology and electronics.
- Despite these challenges, Southeast Asia retains key advantages including efficient infrastructure, integrated production networks, and established supply chain ecosystems. Ell emphasizes that the region’s ability to balance its economic ties between the U.S. and China while sustaining investment flows will define its resilience. As global trade fragments further, Southeast Asia’s adaptability will determine its long-term competitiveness in an era of shifting geopolitical realities.
Southeast Asia finds itself at a crossroads as Donald Trump secures a second term in the White House. In this exclusive feature, Value Chain Asia speaks with Katrina Ell, Head of Asia-Pacific Economics at Moody’s Analytics, to gain expert insights into how the region can navigate this shifting landscape.
As a leading authority on macroeconomic analysis, Moody’s Analytics operates independently from Moody’s Ratings, and provides financial intelligence and analytical tools to understand a range of risks.
With key exporters like Vietnam and Malaysia bracing for potential tariff hikes and economic stability hanging in the balance, how will Southeast Asia (SEA) adapt to this new geopolitical and economic reality with Trump in his second term?
With key exporters like Vietnam and Malaysia bracing for potential tariff hikes and economic stability hanging in the balance, how will Southeast Asia (SEA) adapt to this new geopolitical and economic reality with Trump in his second term?
SEA’s deep integration into global supply chains and its dual reliance on the United States and China make the region sensitive to disruptions. With its economies dependent on exports, policy shifts under Trump could have significant effects on the region, especially during Trump’s second term. According to Katrina Ell, the immediate challenge lies with tariffs.
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“The direct impact for southeast Asia is via the threat of tariffs that will hurt export performance. This will be particularly pronounced for those where exports are a large share of their economy including Singapore, Vietnam, Thailand and Malaysia.”
Tariffs targeting key export industries could result in economic slowdowns, with countries like Vietnam and Malaysia particularly vulnerable. These countries have benefitted from the first trade war that emerged from the first Trump presidency.
Beyond direct trade measures, the implications of a stronger U.S. dollar are already being felt by weaker currencies.
Beyond direct trade measures, the implications of a stronger U.S. dollar are already being felt by weaker currencies.
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“The more indirect impacts are being felt now via a stronger dollar. Weaker currencies across southeast Asia from November onwards has meant that central banks are treading more carefully when it comes to monetary policy normalization. For most of these economies, including Indonesia and the Philippines this isn’t a big concern given that domestic demand has remained relatively resilient, but the longer that policy settings remain in restrictive territory, the more pressure these economies will come under.”
SEA nations are also navigating a complex geopolitical landscape. This is because of balancing their reliance on U.S. military support with their economic dependence on China. This dual reliance has evolved in recent years, as regional players reassess their strategic alignments.
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“Some economies in southeast Asia, including Vietnam and Malaysia have become closer to the U.S. in recent years as China has become a less desirable source of imported goods.”
However, maintaining this balance is becoming increasingly difficult. Growing superpower rivalries between the U.S. and China, especially during Trump’s second term, require SEA nations to carefully calibrate their policies.
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“China and the U.S. are large and critical markets for southeast Asia.” Ell explains. “It is a difficult path to walk to maintain trade and political relations given that China and the U.S. have become more adversarial. It is expected that economies will be increasingly allied to either China or the U.S. rather than balancing both. This is already happening with the Philippines and the U.S. tied via defense agreements and Vietnam politically aligned with China.”
Potential Impacts of Trump’s Policies on Supply Chains
SEA’s supply chains have already undergone significant changes due to Trump’s first presidency and the COVID-19 pandemic. According to Ell, the vulnerabilities exposed by these events have prompted companies to diversify their supply chains.
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”Trump’s first term followed by the pandemic crystalised the importance of diversified supply chains. The focus shifted from minimizing the cost of producing goods and towards minimizing the risk of goods being delayed by political and/or other factors like a pandemic.”
Ell emphasized that this diversification has increased SEA’s role in global supply chains as companies reduce their dependence on China.
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“Southeast Asia has become a more important cog in the supply chain as both the U.S. and Europe have tried to reduce their exposure to China. This has manifested in Southeast Asia being a more important producer for intermediate and capital goods exported to the U.S. while China has become a more important market for final consumer goods into the U.S.”
However, renewed tariffs under Trump’s presidency could disrupt this progress. Country-specific tariffs targeting SEA exports could diminish their competitiveness and negatively affect economic performance.
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”Deglobalization has been a growing trend as geopolitical tensions have overwhelmed multilateral trade agreements in recent years. Country-specific tariffs, which is what is expected under a Trump presidency will make those impacted goods less desirable and hurt overall export performance. But the macroeconomic impact is contingent upon the level of tariff imposed and how much this comprises the export basket.”
The technology sector, known to be particularly vulnerable to tariffs, has already seen manufacturers front-loading shipments to avoid anticipated disruptions during Trump’s second term.
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”There was a renewed flurry of shipments out of Asia in the final months of 2024 as manufacturers front-loaded orders to try and circumvent tariffs. Tech has stood out as a strategic industry that is at particular risk of tariffs.”
Trump’s push for reshoring jobs to the U.S. could further influence foreign direct investments and regional manufacturing dynamics. While countries like India and Mexico are positioning themselves as alternatives, SEA retains a competitive edge due to its established infrastructure and integrated supply chains.
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”While India is continuing to build its manufacturing base, its supply-chains and efficiencies generally lag that of southeast Asia.” Ell explains that “With China the focus of Trump’s protectionist rhetoric, India has positioned itself as a strategically important partner that can help counter China’s rising influence. During Trump’s first term, the diversion of trade away from China benefited India, particularly its exporters of textiles and apparel, pharmaceuticals, and chemicals and organic products.”
Despite these advantages, structural challenges in alternative hubs like India remain a concern.
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“That said, not all tariffs that are potentially imposed on China will be unequivocally positive for India. For instance, during Trump’s first term, Indian manufacturing, especially the electronics and automobiles industries, experienced higher input costs due to their heavy reliance on Chinese raw materials and machinery. Structural issues such as infrastructure bottlenecks and restrictive labour policies within India also hindered trade and investment gains.”
Looking Ahead
A second Trump presidency has the potential to significantly reshape the economic and geopolitical dynamics of Southeast Asia. While challenges like tariffs and superpower rivalries loom large, the region’s resilience, adaptability, and lessons learned from previous disruptions position it to navigate this complex environment during Trump’s second term.
When asked what factors keep companies invested in Southeast Asia despite external pressures, Ell emphasized:
When asked what factors keep companies invested in Southeast Asia despite external pressures, Ell emphasized:
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”The efficiency and integrated supply chains.”
As Southeast Asia recalibrates its strategies in the face of new uncertainties, Moody’s Analytics provides a vital macroeconomic perspective. The region’s ability to maintain its competitive edge while navigating the between the U.S. and China during Trump’s second term will determine its trajectory over the next four years.