The Impact of Trump’s Rise to Power on Indonesia and Southeast Asia’s Economy

Since the recent U.S. election, many foreign policy thinkers and observers in Southeast Asia have expressed concerns about the potential impacts of a second Trump administration. Among their worries are the planned blanket 20% tariffs, reduced climate commitments and support to regional and multilateral mechanisms, and more importantly, increased security risk among key geopolitical flashpoints in the region, including in Southeast Asia.

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

First, 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 taking the helm. Today, leaders in Southeast Asia comprise a multigenerational leader from the old guard to the new, in countries such as Indonesia, Thailand, Malaysia, Singapore, and Vietnam who might have different impressions and presumptions towards the U.S. The way these leaders engage with President Trump in the next four years, will likely create new dynamics, especially given the importance of leadership personalities of President Trump.

Second, Trump 2.0 will also engage with different Southeast Asian economies. Over the past four years, Southeast Asia has experienced significant economic development, characterized by increased competitiveness and deeper integration into global supply chains. Vietnam, in particular, has benefited from the China+1 strategy and the adoption of several free trade agreements, including FTAs with the European Union, the United Kingdom and the Regional Comprehensive Economic Partnership (RCEP) with the wider region. This, in turn, has led to a massive increase in Vietnamese GDP per capita from USD 3.550 in 2020 to USD 4.650 in 2024, and an increase in exports by 35% from USD 264 billion in 2019 to USD 355 billion in 2023.

It’s evident that even during Trump’s tenure in the White House, the region has continued to prosper, albeit at a slower pace than usual. From 2017 to 2020, trade volume between the United States and ASEAN grew modestly, from USD 300 billion to USD 360 billion—an increase of only 20%.

Under the Biden Administration, trade volume surged to USD 500 billion by 2022 and has remained steady at this level since, though the trade deficit with the United States has widened significantly, from USD 82 billion to USD 200 billion.

This remarkable growth, albeit despite an increasing high deficit, may raise concerns over policy makers in Trump’s White House, in particular for ASEAN countries with large trade deficits with the United States. In particular, Trump will also critically assess the countries that are perceived to have strongly benefited from the influx of Chinese investment on manufacturing from China+1 strategy yet increase trade deficit with the United States as the output.

America’s Weak Modalities for Trump in Southeast Asia

Donald Trump once said that tariff was his favorite word in the dictionary. For Southeast Asians, there might be other fine words in the dictionary that describe the region's expectation in engaging the United States.

For the region, the Trump second administration will start with a legacy of declining trust and confidence in the U.S. commitment to Southeast Asia. In the past four years, many have strong aspirations to a greater presence and approach of the U.S. in Southeast Asia under Biden’s leadership. I argued even in 2022, that a potential new state of relationships might be ushered between Jakarta and Washington due to an intensified high-level engagements. However, such hope did not stand longer than expected.

This goes with a reason, President Biden, does not provide any remarkable breakthroughs in his approach to Southeast Asia. The hopeable and notable move is seen through the establishment of Indo-Pacific Economic Framework for Prosperity (IPEF), in which eventually lacking any noticeable concrete economic partnerships, commitments or deals, and is highly absent from a trade and investment increase (justified as not a trade agreement). There is no doubt that IPEF will be the first thing that Trump puts into the trash bin.

Nevertheless, by statistics, the United States remains an important partner for the region, both politically and economically. Its trade volume with the region remains huge (4th largest) at $500bn in 2022, although it has a deficit of $200bn, notably with Vietnam (-$114.6bn), Thailand (-$41.9bn), Malaysia (-$35.2bn) and Indonesia (-$23.3bn).

This deficit will likely become Donald Trump's main economic concern, and again, his plan to impose a blanket 20% tariff on all goods and services entering the US and a 60% tariff on all goods and services from China could lead to high exposure for some Southeast Asian economies. This is expected to be one of Southeast Asia’s most contentious issues, particularly to some of the region's export-oriented economies.

Indonesian Ways in Anticipating Trump’s America First Policy

On the brightside, the introduction of a 60% tariff to Chinese goods might also give an edge for some of Indonesia's key export commodities such as textiles and garments claimed by the related business association, where these tariffs may finally make them more competitive in the U.S. market. In fact, the U.S. is a key market for Indonesia’s Indonesian textiles and garments export that accounts for 20% of its global export volume.

On another note, these Trump tariffs may also give greater incentives for investors and manufacturers to move away from China to countries in the Southeast Asia region. However, this is not uniquely beneficial for Indonesia but also to other fellow ASEAN countries. This would mean Indonesia needs to continue improving manufacturing competitiveness and reforming its investment favorability.

Indonesia has long advocated for fairer trade policies concerning non-reciprocal market access and unfair green protectionism. While different countries may define fair trade differently, Trump’s America First policy might add more complexities in facing the existing global trade issues. To avoid further escalation in tariffs and tit-for-tat measures, Indonesia should review its existing free trade agreements (FTAs) and amend it accordingly to better reflect the unfair components of the trade ties even including with China.

Indonesia has long sought to expand its trade and economic ties with the United States, with Jakarta particularly keen to access U.S. markets and attract U.S. investment. For instance, Indonesia’s industrial downstreaming efforts, including the ban on exports of raw critical minerals, are part of its strategy to attract foreign direct investment (FDI), which has yet to attract any concrete U.S. investment.

As an alternative thought, it is useful to see investment as a way to address the concern on the U.S. trade deficit with Indonesia. For Indonesia’s economic development that significantly requires huge capital, connectivity and infrastructure, the U.S. private investment is highly desirable. It will also eventually increase the Indonesians GDP per capita, thereby increasing Indonesians purchasing power and making U.S. products and goods more affordable to Indonesians. This could serve a more long-lasting healthy trade relationship between the two countries.

It is increasingly more obvious that Indonesia’s policymakers aim for more diversification from Chinese investment to the country’s downstreaming strategy to mitigate criticism of its over-dependence on a singular partner. Meanwhile, if the United States under Trump does not take this as an opportunity to enhance its presence in the country’s strategic industries, Indonesia remains open to other options from different parts of the globe.

In this case, America’s strategy of forcing countries to choose sides will not work for Indonesia, which has the advantage of being actively engaging multiple options, remains to be seen under Prabowo’s leadership. If Trump’s policies at the end will push Indonesia in a zero-sum game, it will likely disincentivize the future state of Jakarta - Washington relationship.