Southeast Asia as the new investment hub

When the US government imposed tariffs on pretty much every trading partner, it triggered a chain reaction that continues to ripple through the world. Businesses everywhere suddenly had to decide how to reorder their global supply chains, not just to minimise costs while maintaining desired quality standards, but now they had to minimise costs, including tariffs, while planning for the possibility that these tariffs might change in the future.

Imagine you are a US business and you want to build a new factory to manufacture electric components. You can either build that factory in the US, where labour costs are very high, but you don’t face any tariffs. But then you face the possibility that in the future the tariffs will go away, and you are stuck with a factory that is not competitive.

Alternatively, you can build another factory in China, where labour costs are low, but you face high tariffs that make your product uncompetitive in the US market. Plus, you never know if the trade war with China escalates and your Chinese factory will be subject to state intervention from the Chinese government, or the US government will place additional tariffs on Chinese imports.

Or, you can try to find a third region that is out of the spotlight that combines reasonably low labour costs with low tariffs and a diversification away from China.

Since last year, I have been arguing that Southeast Asian countries are ideally positioned to benefit from the US tariffs. And a new study from the Asian Development Bank shows that this is indeed the case. The chart below is the key chart. It shows the investment from both the US and China in ASEAN countries in Southeast Asia, as well as investments in the countries of Central America. There are also charts that show the investment flows from the US to China and from China to the US.

US businesses have invested less and less in China in recent years, while Chinese businesses have kept their investments in the US stable. Both US and Chinese firms have kept their investments in Central America stable as well, but the investments in the members of ASEAN have skyrocketed since 2024.

US and Chinese investments in ASEAN and Central America

This investment boom is becoming increasingly palpable in Southeast Asia, and it should, in the long run, boost their GDP growth, the wealth in these countries and of course, ultimately, their stock market.