Implications of U.S. Tariffs on Southeast Asia: Navigating The Trade Tumult

The Trump 2.0 Tariffs and Trade Agreements

With limited progress in striking trade deals ahead of the Trump administration’s July 9 tariff deadline, President Trump announced on July 7 a new deadline of August 1. This announcement was accompanied by a string of letters to numerous countries worldwide, catalyzing a wave of negotiations and multiple deals being brokered in the lead up to the revised deadline.

On July 31, President Trump issued an executive order setting out the new reciprocal tariff rates for individual countries. Per the terms of the order, the new tariff rates took effect on August 7, 2025. Judging from the trade deals struck to date, tariffs have served as leverage in negotiations to drive manufacturing and production back to American soil, open selected overseas markets to U.S. goods, secure foreign investment in key U.S. industries, and achieve America’s broader geopolitical goals.

A consequence of different tariffs’ applying to different countries is the absence of a consistent, principled basis on which each tariff rate is determined. Business and governments alike will now have to contend with persistent unpredictability in trade policy while taking anticipatory measures to cushion the medium-to-longer term impact of tariffs on their projections and bottom lines.

Southeast Asia — A Microcosm of the (New) Global Trade Order

Collectively, countries in Southeast Asia have been subject to the entire spectrum of tariff rates. This ranges from the baseline rate of 10% for Singapore (despite the U.S. trade surplus with the nation state) to some of the highest rates worldwide of 40%. As an emerging global manufacturing hub through which large amounts of trade flows, the varying trade arrangements across the ASEAN nations have set the stage for an upheaval of traditional supply-chain frameworks and a rebalancing of superpower influence in the region.

Addressing trans-shipping concerns has been a common feature across deals in the region, in keeping with the American bipartisan objective of edging China out of the global supply chain. The deal with Vietnam entails a tariff rate of 20%, significantly lower than the 46% announced in April. While specific details of the agreement have yet to be published, it was announced that trans-shipments from third countries through Vietnam will face a 40% levy, possibly aimed at goods produced in Vietnam with significant Chinese content. Similarly, the Indonesia deal includes a commitment to strengthen rules of origin to ensure that third countries (e.g., China) do not stand to gain from the bilateral agreement.

Tariff developments concerning Thailand and Cambodia highlight how the broader geopolitical climate has influenced trade negotiations. Only after agreeing to a ceasefire agreement were Thailand and Cambodia each issued reduced tariff rates of 19% on August 1. Malaysia, which played a key role in the peace process, also landed a reduced tariff rate of 19% (from 25% previously). This underscores President Trump’s continued willingness, carried over from his first term, to use trade as a vehicle to achieve for broader diplomatic outcomes.

Rounding out the Southeast Asian region, other countries have come to the negotiating table as well but have yet to land on a trade deal with the U.S. These include Myanmar and Laos, whose tariff rates both stand unchanged at 40%, the world’s second-highest after Syria. Brunei is now subject to a tariff rate of 25% effective August 7, marginally higher than the 24% threatened in April.

Broader Asia — Tariffs as Geopolitical and Economic Levers

For the major North and South Asian economies that form the geographic and economic hinterland for Southeast Asia, geopolitical factors remain at the forefront of the trade agreements (or, in the case of India and China, disagreements) that have been reached.

Japan and Korea — U.S. penetration into foreign markets and inflows of foreign investment 

The revised tariff rates of 15% with Japan and Korea were embellished with a host of arguably more important adjacent agreements, in line with the U.S. goal of opening markets that had hitherto been inaccessible to American products to reduce trade deficits and boost domestic industries.

According to President Trump, Japan committed to opening its market to U.S. automotives, rice, and other agricultural products alongside investing $550 bn in a new Japanese/U.S. investment vehicle to “rebuild and expand core American industries” such as energy, semiconductors, critical minerals, pharmaceuticals, and defense.

According to President Trump, South Korea reached a “Full and Complete Trade Deal” with the U.S. on the eve of the August 1 deadline. The deal involved a reduced 15% tariff on Korean exports, including automobiles, and South Korea would set up a $350 bn fund for selected investments in the U.S., including the purchase of up to $100 bn worth of energy products. Under the agreement, South Korea would also accept American products including automotive and agricultural goods into its markets with no accompanying import duties.

Alongside the deals with Indonesia, Vietnam, Thailand, and the Philippines, the alacrity with which these larger Asian economies entered into deals with the U.S. signals a clear desire for continued American trade presence in the continent, even at the cost of ostensibly substantial economic concessions for these partners. 

India — Geopolitical tensions and the Russian nexus

The U.S. and India have been — and remain — at an impasse regarding reaching a trade deal. Geopolitics has dominated negotiations, with heightened tensions showing no signs of simmering soon.

Following a substantial 25% tariff on Indian goods from August 1, President Trump imposed a further 25% tariff hike (effective on August 28), singling out India’s continued purchase of Russian oil. India has decried these retaliatory tariffs as “unfair, unjustified, and unreasonable,” and it remains to be seen if India is but the first of more countries the Trump administration intends to substantially hike tariffs on, in an indirect bid to curtail trade activity and relations with Russia. 

China — The elephant in the room

In contrast to all its Asian counterparts — in large part due to the relative strength and staying power of the Chinese economy — China has taken an aggressive tit-for-tat approach to the imposition of U.S. tariffs. In an acute response to the original tariff rate of 145%, in early April China imposed on the U.S. export restrictions on seven rare earth elements and magnets. On May 12, the two countries agreed to suspend tariffs for at least 90 days. On August 11, 2025, the period was extended for an additional 90 days.

During this time, China is subject to a 30% tariff rate. It is notable that both major powers have demonstrated willingness and propensity to make calculated concessionary measures in the interest of bilateral negotiations. In late June, Washington and Beijing signed a trade agreement regarding magnets and rare earth metals (an industry that will continue to feature strongly in the strategic tussle between these powers). The U.S. has also gone so far as freezing restrictions on technology exports (including Nvidia’s H20 chip) to avoid jeopardizing trade talks with China.

Following what U.S. Treasury Secretary Scott Bessent described as “very constructive” talks ahead of the August 1 deadline, an extension of the tariff truce seems likely, with President Trump most recently signaling on August 5 that both sides were “getting very close to a deal.”

With China and the U.S. being ASEAN’s largest and second-largest trading partner respectively, the region is at the center of a major realignment. Southeast Asia will keenly observe next moves between these superpowers. As the saying goes: “When the elephants fight, the grass suffers.”

Rewiring of the International Trading System

Amidst the tumult and unpredictability, it has become unquestionably clear that American tariffs are here to stay, at least so long as President Trump is in office. In the months ahead, we foresee an intensification of the following trends across Southeast Asia.

Greater trade diversification

In recent decades, American companies have been increasingly looking to Southeast Asia as a low-cost production alternative, in part to reduce reliance on Chinese manufacturing facilities and imports. That said, this trend may be upended by tighter trans-shipping rules and stricter rules of origin, as the granular details of the U.S.’ trade deals with Southeast Asian partners begin to emerge. 

Looking ahead, ASEAN countries will look to establish strong trade links with countries beyond the U.S. and China. More countries are looking to either strengthen existing ties or establish new links with the EU, Canada, the Pacific, and Africa, to name a few. For instance, the EU and Indonesia recently announced an agreement to move ahead on an EU-Indonesia Free Trade Agreement, which would support cooperation on critical raw materials, enhance resilience of supply chains, and promote trade and investment.

Intra-ASEAN integration

We expect the increasingly uncertain and volatile external trade landscape to push ASEAN to deepen economic integration. Traditionally, trade volume among the ASEAN member states has been low, despite the rapid growth of ASEAN exports. Malaysia, the incumbent rotating chair for ASEAN, recommended a bolder approach of economic integration and warned against a “business-as-usual approach.” On May 25, ASEAN concluded negotiations on upgrading the ASEAN Trade in Goods Agreements, aimed at achieving a free flow of goods among member states and creating greater economies of scale through enhanced regional integration and connectivity. 

Geopolitical considerations featuring heavily in trade decisions

Geopolitics will feature heavily when external trade partners are considering suppliers in Asia. Their decisions are likely to go beyond factors such as low-cost country sourcing. For example, while India may be as attractive as some Southeast Asian countries in terms of production costs, India-U.S. ties present markedly different geopolitical risks and, by extension, different tariff risks. Look no further than President Trump’s elevated 50% tariff on India — on the basis of importation of Russian oil — for proof that geostrategic factors will have to be substantively considered when doing business in Asia. 

Even within ASEAN, such countries as Vietnam and Myanmar may have previously been viewed as substitutes for generally low-cost production options in the region, but each country now presents very different U.S. geopolitical risk and consequently different risks of tariff rate hikes in the future. 

American protectionism is here to stay

The U.S. market promises to grow increasingly harder to access for foreign players with the Trump administration’s goal of boosting homegrown manufacturing and driving production back to the U.S. As the administration moves beyond bilateral tariffs and turns to widespread implementation of tariffs covering such key sectors as pharmaceuticals, semiconductors, autos, and metals, all of Asia will have to contend with inescapable heightened costs across the board. 

President Trump’s declaration on August 8 that the U.S. would impose a tariff of 100% on imports of semiconductors (save for companies that are either manufacturing in the U.S. or have committed to doing so) will have profound implications on the growth forecasts of Southeast Asian nations (e.g., Malaysia, Singapore, and the Philippines) for which semiconductors make up a sizeable proportion of exports.

Proactive, Preparatory, and Strategic Measures — Navigating the Trade Tumult

As global trade tensions intensify, to remain competitive and nimble amid this enigmatic landscape, companies in Southeast Asia should:

• adopt forward-looking strategies to safeguard their operations and navigate a fast-changing regulatory landscape 
• diversify their portfolio of trading partners to reduce over-reliance on a few key partners and sources 
• undertake a detailed examination of country of origin matters and rules of origin to more accurately assess their exposure to tariff risk and reduce the risk of unexpected duties; this is particularly relevant once there is more clarity surrounding the new trans-shipment rules that will likely apply to many Southeast Asian countries
• consider moving production and realigning supply chains where needed, with geopolitical considerations becoming increasingly salient in the international movement of goods
• revisit and renegotiate contracts to reallocate risk and responsibilities between the parties
• engage in scenario-planning based on the outlook for global trade, and develop drawer plans in anticipation of multiple variables and fluctuations in trade policy
• conduct targeted due diligence on counterparties’ exposure to the U.S. market when evaluating investment opportunities
• consult with international trade counsel to assess geopolitical risk and the potential impact of tariffs on business decisions, taking into account sectoral, industry-centric, and other relevant factors