By Dr Lili Yan Ing, Secretary General of International Economic Association (IEA) and Senior Economist, ERIA, and Yessi Vadila, Trade Specialist: With Donald Trump’s return to the White House on 20 January 2025, a revived ‘America First’ policy – emphasising reshoring jobs, reducing trade deficits, and tightening immigration – may again influence emerging economies. Here, we assess potential impacts on the Southeast Asian economy (grouped as ASEAN), particularly since ASEAN has become an alternative source of imports and a potential destination for investment relocation amidst escalating trade tensions between the United States and China. We focus on four key areas: tariffs and trade deficits, the Generalised System of Preferences (GSP), global supply chain reorientation, and foreign direct investment (FDI).

Tariffs and Trade Deficits

In his previous term, Trump used aggressive tariffs to tackle the US trade deficit, particularly with China, and he has plans for tariffs up to 60% on Chinese imports (and up to 200% on electric vehicles), with possible 10% to 20% tariffs on imports from other countries. This could have direct and indirect repercussions for Indonesia.

ASEAN stands as the fourth-largest trading partner of the US, following Mexico, Canada, and China. The region exports goods such as electronic components, apparel, footwear, and tires to the US, while importing products such as electrical machinery, petroleum oils, soybeans, and aircraft. In 2023, ASEAN’s exports to the US were valued at US$269.8 billion and primarily comprised raw materials and assembled goods for US production. If tariffs on ASEAN countries increase, the cost of these imports would rise, making them more expensive for US producers and consumers. This could reduce US manufacturing competitiveness and add to inflationary pressures.

The Generalised System of Preferences (GSP)

Established in 1976, the GSP programme allows selected goods from developing countries duty-free access to the US market, giving ASEAN countries a competitive advantage. In 2023, ASEAN exports worth US$11.7 billion benefited from GSP status, covering 4,867 products (based on Harmonised System six-digit tariff lines), including travel goods, electrical parts, organic chemicals, mattresses, plywood, and tires. ASEAN beneficiaries currently include Cambodia, Myanmar, Indonesia, the Philippines, and Thailand, while Malaysia has been excluded from the programme since 1998.

During Trump's first term, which commenced in 2017, his administration removed countries like India and Turkey from GSP eligibility, citing trade imbalances and other concerns. At the same time, amongst ASEAN countries, Thailand and Indonesia were subject to GSP eligibility reviews and were asked to expand market access for US goods and services (note: This request contradicted the Tokyo Agreement of 1979, Article 5, which prohibits developed countries from demanding market access from GSP recipient countries). Should Trump re-evaluate Thailand’s and Indonesia’s GSP status, a suspension or termination could increase costs for US companies reliant on ASEAN exports. Since nearly 60% of ASEAN’s GSP exports come from Thailand and Indonesia, losing GSP benefits could reduce ASEAN’s overall exports to the US. It’s worth noting that many of these ASEAN exports are essential inputs for US production and exports; thus, a GSP termination would likely raise domestic prices (inflation) in the US and erode the country’s export competitiveness.

Global Supply Chain Reorientation

Another major focus of Trump’s economic strategy will be to encourage US companies to reshore manufacturing, thereby reducing reliance on foreign suppliers. This shift could decrease demand for ASEAN’s manufacturing output – particularly in electronics, textiles, and automotive industries – hence impacting production and exports. However, ASEAN could benefit from a ‘China Plus One’ strategy, where firms retain part of their operations in China but relocate other parts to nearby countries. With competitive labour costs, a large domestic market, and a strategic position, ASEAN remains an attractive manufacturing hub, albeit with some infrastructure and regulatory challenges.

The escalation of US–China trade tensions – now extending into technology, strategic industries, and national security – will have significant implications for Southeast Asia, which is deeply integrated into East Asian supply chains. Given ASEAN's role in supplying inputs and intermediate goods for broader production networks in textiles, semiconductors, telecommunications, electrical equipment, machinery, computers, and automotive industries, the region could face reduced demand if reshoring leads to a drop in production and export requirements in these networks.

Foreign Direct Investment (FDI)

During Trump’s first term, he implemented tax cuts and regulatory incentives to encourage American companies to invest domestically. Should he adopt similar policies in his second term, US FDI flows to ASEAN may decline. In 2023, the figure amounted to US$74.36 billion, accounting for 32.35% of total FDI inflows to ASEAN and positioning the US as the region’s largest FDI source. US investments in the region have been primarily concentrated in finance (including banking and insurance), professional and technical services, manufacturing, information and communication, and real estate.

There are concerns that Trump’s tax policies could further discourage US FDI abroad by incentivising American companies to reinvest earnings domestically. This shift could significantly impact ASEAN industries that rely on partnerships with US capital, technology, and expertise, particularly in finance, energy, mining, and pharmaceuticals.

Conclusion

A second Trump administration presents both challenges and potential opportunities for the ASEAN economy. The potential for increased tariffs, a GSP review, and a push towards US supply chain reshoring could disrupt trade relations, reduce investment, and require ASEAN to adapt diplomatically and economically.

To mitigate these risks, ASEAN could focus on diversifying its economic partnerships, strengthening local manufacturing, and expanding trade ties with other major economies to reduce dependency on any single market. Additionally, ASEAN might adopt a direct ‘business-to-business’ approach to attract US investment while exploring new FDI sources. This could include attracting more investments from the European Union, China, Hong Kong, Japan, South Korea, Taiwan, and the Middle East to offset any potential declines from the US.

By enhancing regional cooperation and establishing a more robust economic presence, ASEAN would be better positioned to withstand shifts in US economic policy, ensuring stability and continued growth in an increasingly multipolar world.

This opinion piece was written by Dr Lili Yan Ing, Secretary General of International Economic Association (IEA) and Senior Economist, ERIA, and Yessi Vadila, Trade Specialist has been published in The Jakarta Post, The Jakarta Globe, and The Manila Times. Click here to subscribe to the monthly newsletter.

Disclaimer: The views expressed are purely those of the authors and may not in any circumstances be regarded as stating an official position of the Economic Research Institute for ASEAN and East Asia.