Trump's Policies and the Erosion of U.S. Influence in Asia-Pacific Markets

The return of Donald Trump to the U.S. presidency in 2025 has triggered a seismic shift in the geopolitical and economic dynamics of the Asia-Pacific region. His aggressive trade policies, erratic tariff announcements, and neglect of multilateral engagement have eroded U.S. credibility as a reliable partner, creating significant investment risks for emerging markets in the region. As Southeast Asian nations recalibrate their economic strategies, China's growing influence is becoming increasingly pronounced, reshaping the landscape of global trade and investment.

The Tariff Shock and Supply Chain Reconfiguration

Trump's 10% universal tariff on imports and his “Liberation Day” tariffs—ranging from 24% to 49% on goods from key U.S. allies and trade partners—have destabilized supply chains across the Asia-Pacific. According to a report by the Center for Strategic and International Studies (CSIS), these measures have forced companies to reconsider manufacturing hubs in Vietnam, Malaysia, and Thailand, which now face the dual challenge of higher U.S. tariffs and the need to diversify trade relationships How President Trump Lost the Indo-Pacific^[1]. For instance, Vietnam's FDI inflows increased by 5.7% in 2024, while China's declined by 9.2%, reflecting a clear shift in capital flows Trump’s Tariffs Likely Pushing Asia Elsewhere for Economic Partners^[4].

The semiconductor industry, a cornerstone of U.S. technological dominance, is particularly vulnerable. Trump's proposed tariffs on semiconductors and related technologies have already delayed major investments, such as Samsung's Texas-based fabrication plant, now projected to open in 2028 instead of 2024 Trump’s tariffs could kill America’s multibillion-dollar semiconductor manufacturing boom^[5]. The administration's criticism of the CHIPS and Science Act as a “horrible thing” further complicates efforts to revitalize domestic production, leaving U.S. firms reliant on global supply chains for critical components like GPUs and lithography machines Trump’s tariffs could kill America’s multibillion-dollar semiconductor manufacturing boom^[5].

China's Strategic Gains and U.S. Soft Power Deficit

While the U.S. retreats into protectionism, China has capitalized on the vacuum. President Xi Jinping's recent visits to Southeast Asia and increased investments in Vietnam and Malaysia have reinforced Beijing's role as a stable, if self-interested, partner. According to data from FDI Intelligence, China's inbound-to-outbound FDI project ratio plummeted to 25% in early 2025, compared to 52% in 2016, signaling its transition from capital importer to exporter China has shifted from being a capital importer to a capital exporter as US multinationals have set out more plans to invest at home^[3]. This shift is evident in Hanoi, where Chinese investments have surged, positioning Vietnam as a key node in regional supply chains.

The U.S. soft power deficit is further exacerbated by the abolition of USAID programs that previously fostered trust in areas like disaster preparedness and trade facilitation How President Trump Lost the Indo-Pacific^[1]. Meanwhile, Trump's controversial rhetoric—such as his Gaza relocation plan—has alienated Muslim-majority ASEAN countries, contrasting sharply with China's diplomatic outreach Trump’s Tariffs Likely Pushing Asia Elsewhere for Economic Partners^[4].

Quantifying the Shift: FDI and Economic Resilience

Quantitative data underscores the magnitude of the U.S. retreat. The Asia-Pacific region attracted $605 billion in FDI in 2024, with 75% of greenfield projects targeting advanced manufacturing, AI infrastructure, and EV production Developing Asia: Mixed picture for foreign investment in 2024^[6]. While the U.S. inbound-to-outbound FDI ratio hit 45% in early 2025—a record high—China's ratio fell to 25%, reflecting a reversal of capital flows China has shifted from being a capital importer to a capital exporter as US multinationals have set out more plans to invest at home^[3].

Emerging markets like India and Indonesia are leveraging this shift. India's FDI inflows reached $71 billion in 2024, driven by semiconductor and renewable energy projects, while Indonesia's membership in BRICS signals a strategic pivot toward economic pragmatism Developing Asia: Mixed picture for foreign investment in 2024^[6]. However, the long-term risks for U.S.-dependent economies like Vietnam and Malaysia remain significant, with potential GDP contractions and employment impacts if trade tensions escalate China has shifted from being a capital importer to a capital exporter as US multinationals have set out more plans to invest at home^[3].

The Path Forward: Rebuilding Credibility or Accepting Decline?

For the U.S. to reclaim influence in the Indo-Pacific, it must adopt a coherent engagement strategy that balances protectionism with multilateral cooperation. Trump's transactional approach—prioritizing bilateral deals over ASEAN and other regional institutions—has weakened U.S. leverage at a time when strategic ambiguity is increasingly valued Trump’s tariffs could kill America’s multibillion-dollar semiconductor manufacturing boom^[5]. Without a reset, the region will likely deepen ties with China and middle powers like Japan and South Korea, further marginalizing U.S. leadership.

Investors must also factor in the geopolitical risks of Trump's policies. While the U.S. remains a major player in green energy and semiconductor manufacturing, its credibility as a stable partner is in question. Emerging markets in the Asia-Pacific, meanwhile, are demonstrating resilience by diversifying trade relationships and accelerating regional integration through agreements like RCEP and CPTPP Trump’s Tariffs Likely Pushing Asia Elsewhere for Economic Partners^[4].