The new “reciprocal” tariffs imposed globally by U.S. President Donald Trump are fueling concern that higher costs will squeeze businesses in Southeast Asia that have relied on inexpensive labor.
Among the areas at risk are the fisheries and garment industries, which are especially labor-intensive and count on the U.S. as a major market.
Whispers of renewed tariffs from former President Donald Trump are sending shivers down the spines of manufacturers across Southeast Asia, threatening to disrupt supply chains and erode the region’s competitive advantage as a low-cost manufacturing hub.
Trump, a leading contender for the 2024 Republican presidential nomination, has repeatedly floated the idea of imposing sweeping tariffs on goods imported into the United States, including a potential 10% across-the-board tax. While the specifics remain vague, the prospect has ignited concerns across the ASEAN region, where countries like Vietnam, Malaysia, Thailand, and Indonesia have seen significant growth in recent years, largely fueled by their ability to offer competitive pricing to global buyers.
“The low-cost edge is precisely what has attracted much of the foreign investment into these countries,” explains Dr. Anya Sharma, an economist specializing in Southeast Asian trade at the National University of Singapore. “Significant tariffs levied by the U.S., one of the region’s largest export markets, would undoubtedly impact their competitiveness and could force manufacturers to rethink their investment strategies.”
For years, Southeast Asia has benefited from companies seeking to diversify their supply chains away from China, a trend accelerated by previous Trump-era tariffs and ongoing geopolitical tensions. The region has become a vital source for electronics, textiles, footwear, furniture, and automotive components.
“We’ve invested heavily in building our manufacturing capacity in Vietnam precisely because of its competitive cost structure and access to the U.S. market,” said John Miller, the CEO of a U.S.-based electronics manufacturer with operations in Ho Chi Minh City, requesting anonymity due to sensitivity around the potential tariffs. “If Trump reimposes tariffs, it could force us and other companies to re-evaluate our presence here, potentially shifting production to higher-cost regions or even back to the U.S., which would be a significant blow to the Vietnamese economy.”
While the potential impact varies by country and sector, analysts predict that labor-intensive industries like textiles and footwear would be particularly vulnerable. Companies relying on thin profit margins would struggle to absorb the added costs of tariffs, potentially leading to job losses and factory closures.
Beyond the direct impact on manufacturers, experts warn of broader economic consequences. A decrease in exports could weaken Southeast Asian currencies, impact investment flows, and slow down overall economic growth.
“The threat of widespread tariffs introduces a significant element of uncertainty into the region’s economic outlook,” adds Sharma. “Businesses will be hesitant to make long-term investments, and consumers could face higher prices for imported goods.”
Furthermore, the prospect of tariffs could incentivize companies to seek alternative sourcing locations, potentially benefiting countries like India or Mexico, which are also vying for a larger share of the global manufacturing pie.
As the U.S. presidential election draws closer, Southeast Asian governments and businesses are closely monitoring the unfolding situation. They are hoping for a more predictable trade environment that allows them to continue leveraging their competitive advantages and contributing to global supply chains. However, the looming threat of Trump’s tariffs serves as a stark reminder of the volatility and interconnectedness of the global economy, and the potential for political decisions to have far-reaching consequences.
