Is there any upside for southeast Asia's economies under trump 2.0

Many foreign policy thinkers and observers in Southeast Asia are concerned about the potential impact of a second Donald Trump presidency in the U.S. Among their worries are trade tariffs, reduced climate commitments, and, more importantly, increased security risks around key geopolitical flashpoints in the region.

Given the predominantly cautious view of Trump's return to the White House, it raises a question: Is there any upside for Southeast Asia with Trump 2.0, or is it entirely downside?

It's essential to recognize that Southeast Asia has evolved rapidly since the first Trump administration, with the emergence of a new generation of leaders at the helm. The way these leaders engage with Trump over the next four years will likely create new dynamics.

And over the past four years, Southeast Asia has made significant economic gains, characterized by increased competitiveness and deeper integration into global supply chains. Vietnam, in particular, has benefited from the "China plus one" strategy and the adoption of several free trade agreements. This, in turn, has led to a hefty increase in Vietnamese per capita gross domestic product --from $3,550 in 2020 to $4.650 in 2024 -- and a 35% increase in exports between 2019 and 2023.

During Trump's first stint, the region continued to prosper, albeit at a slower pace than usual. From 2017 to 2020, trade volume between the U.S. and ASEAN grew modestly, from $300 billion to $360 billion, an increase of only 20%. During the Biden administration, trade volume surged to $500 billion by 2022 and has remained steady at that level since. The region's trade surplus with the U.S., however, widened significantly, from $82 billion to $200 billion.

The rapid growth and increasing trade surplus may raise concerns among policymakers in Trump's White House. In particular, Trump is likely to scrutinize countries that have significantly benefited from investment driven by the China plus one strategy while simultaneously contributing to a growing trade deficit with the U.S.

With Donald Trump having once said "tariff" was his favorite word in the dictionary, many Southeast Asians may find other suitable language to describe the region's expectations for engaging the U.S. under Trump.

Even so, Biden did not make any breakthroughs in his approach to Southeast Asia. His Indo-Pacific Economic Framework for Prosperity (IPEF) lacked any noticeable concrete economic partnerships, commitments or deals, and there is no doubt that Trump will trash the initiative.

Nevertheless, the U.S. remains an important partner for the region, both politically and economically.

Addressing the trade deficit is likely to be Trump's primary economic focus. His proposed plan to impose a blanket 20% tariff on all goods and services entering the U.S., along with a 60% tariff on imports from China, could heavily impact certain Southeast Asian economies. This policy is expected to become contentious, particularly for the region's export-oriented economies.

But on the bright side for Jakarta, a 60% tariff on Chinese goods might help some of Indonesia's key export industries, such as textiles and garments, which currently account for about 20% of Indonesia's exports.

Trump tariffs may also provide greater incentives for investors and manufacturers to move away from China to countries in Southeast Asia. While this would not be uniquely beneficial for Jakarta, it would mean Indonesia will need to continue improving manufacturing competitiveness and reforming its investment policies.

Indonesia has long championed fairer trade policies, particularly in addressing nonreciprocal market access and "green" protectionism. While definitions of fair trade vary across nations, Trump's America First policy could further complicate existing global trade dynamics. To prevent an escalation of tariffs and retaliatory measures, Indonesia should reevaluate its current free trade agreements and make necessary amendments to address imbalances in trade relationships, including those with China.

Indonesia has consistently sought to deepen its trade and economic ties with the U.S., aiming to secure greater access to the U.S. market and attract investment from American companies. As part of this strategy, Jakarta has implemented industrial downstreaming policies, including a ban on the export of raw critical minerals. However, these efforts have yet to generate significant U.S. foreign direct investment.

Investment can also be viewed as a means to address U.S. concerns about its trade deficit with Indonesia.

For Indonesia, which requires substantial capital for economic development, connectivity and infrastructure, U.S. private investment is highly desirable. Such investment could ultimately boost Indonesia's GDP per capita, increase purchasing power and make U.S. products more affordable for Indonesian consumers.

Indonesia's policymakers are increasingly focused on diversifying investment sources, particularly within the country's downstreaming strategy, to address concerns about overreliance on Chinese investment. However, if the U.S. under Trump fails to seize this opportunity to strengthen its presence in Indonesia's strategic industries, Jakarta remains open to exploring partnerships with other global players.

Forcing countries to choose sides is unlikely to work with Indonesia, which has successfully leveraged its ability to engage with multiple partners. Under Prabowo's leadership, this strategic flexibility is expected to continue. Should Trump's policies push Indonesia into a zero-sum game, it could undermine the future of Jakarta-Washington relations.

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This article by Noto Suoneto first appeared in Nikkei Asia on 11 December 2024. It is featured here as part of our Member Publications archive.