With the US transitioning into a new leadership as the Biden administration wraps up, concerns over how the policies of the new president-elect, Donald Trump, would affect the Southeast Asian market abound. The Southeast Asia region is one of the world’s fastest-developing regions, with international trade, security, and foreign direct investment heavily dependent on good standing with the US.

 

Impact of US Economic Policy Shifts on Southeast Asia’s Forex Markets

 

Changes to US economic policies tend to affect economic relations, exports, and forex trading in Singapore, Malaysia, Thailand, and other Southeast Asian countries. Under previous administrations, the region was exposed to open trade policies, allowing countries like Vietnam, Cambodia, and Thailand to export to the US. The trade relationship between the US and Southeast Asian countries has been critical to the region’s globalization.

   

However, with the Trump administration underway, there are concerns that the US government may impose trade tariffs, as seen during the US-China trade conflict. The president-elect aims to raise the levy on global imports by up to 20% and, for China, up to 100%. The strict rules governing imports in the US have a solid foundation in the administration’s mission to promote America-first policies.

 

While restrictions on imports, especially in sectors like textiles, electronics, and agriculture, may benefit the US government, Southeast Asian countries may be forced to redirect their export strategies to other countries. But even in the face of new international trade agreements, the region may plunge into a state of reduced demand, affecting the economy.

 

The Southeast Asian market could experience a boost if the new US administration revises its stance on discontinuing the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), from which the US withdrew in 2017. This would grant Southeast Asian countries more market access and eliminate trade barriers. However, the Trump-led administration will not likely reconsider the US government’s position on the CPTPP.

 

US-China Trade Rivalry

   

The ongoing rivalry between the US and China has constituted a strain on Southeast Asian countries that share deep economic ties with the US and China. These countries, in a bid to maintain beneficial relationships with both countries, may find it challenging to make several economic and geopolitical decisions. If the Trump administration increases the limitations against imports from China, ASEAN countries may come under increasing pressure to align with one side. This may present the opportunity for other Southeast Asian countries like Singapore and Vietnam to scale their manufacturing sectors and form stronger trade alliances with the US.

 

Another factor driving economic growth for Southeast Asian countries is the adoption of the China+1 strategy by businesses. Companies maintain a base in China while setting up operations in neighboring countries to diversify their production and sourcing beyond China. Companies can leverage their presence in ASEAN countries to facilitate business in the US. Southeast Asia’s proximity to China and the availability of labor force allow for a more streamlined manufacturing and distribution of goods.

 

Outlook on Foreign Direct Investments in South East Markets

 

With the Trump administration tending towards a more protectionist government, foreign direct investment in the Southeast Asia region may take a fall. In the past, US investments in Southeast Asia have been crucial for the region’s economic growth, especially in industries such as manufacturing, technology, and infrastructure. Industries that depend on US consumers, such as electronics and clothing manufacturing, might receive less foreign investment from the US in a protectionist government. This could slow down economic growth in countries like Thailand and Cambodia.

If the new administration adopts economic policies that promote free trade and cross-border partnerships, American companies and investors are more likely to increase their foreign direct investments (FDIs) in Southeast Asia.

   

For tech-advanced regions like Singapore, such investment would benefit high-tech sectors like fintech (financial technology), artificial intelligence (AI), and sustainable energy, where innovation and technological infrastructure are already strong. Singapore, being a tech hub, could see rapid growth and new job opportunities in these areas.

 

In developing countries like Indonesia, which are still growing their economies, increased U.S. investment could help boost industries and create jobs. The inflow of capital and business expansion would lead to higher employment rates, which, in turn, would stimulate economic growth and potentially raise living standards.

 

Post-Election Declaration by South East Asia Governments

 

Following the US elections, most Southeast Asian countries have made attempts to welcome the new president, Donald Trump, in view of a favorable coalition in the future. President Ferdinand Marcos Jr. of the Philippines was the first Southeast Asian leader to extend congratulatory messages to President Trump. In his words, the Philippine president hopes for an ‘unshakeable alliance’ with the US.

 

Paetongtarn Shinawatra, Thailand’s Prime Minister, took to X to congratulate Trump, writing in a post that she anticipates the advancement of the existing alliance between the US and Thailand for the prosperity of the Indo-Pacific region. In a public statement, Anwar Ibrahim, Malaysia’s Prime Minister, felicitated Trump on his remarkable political comeback and affirmed that Malaysia was ready to move forward with the US with ‘optimism, collaboration, and shared purpose.’

 

Singapore was not excluded from the nations, stating its willingness to continue its alliance with the US. Singapore’s Prime Minister Lawrence Wong congratulated the Trump-Vance team for their victory and expressed clear intent to work with their administration. In the same vein, other Southeast Asian countries have expressed intent to maintain favorable trade relations with the US.

 

Southeast Asia’s Path Forward

 

Donald Trump’s re-emergence as president-elect brings a mix of uncertainty and opportunity for Southeast Asian markets. His protectionist policies may pose challenges for regional exports and foreign investments, especially if trade tariffs are heightened. However, these shifts also open doors for Southeast Asia to strengthen intra-regional trade, diversify export strategies, and attract businesses exploring alternatives to China.

 

With that said the future of the Southeast Asian market remains heavily hinged on attracting foreign direct investments beyond the US and establishing more trade relations across more developed countries.

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November 20th, 2024 by financetwitter

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