Assessing the Impact of U.S.-China Geopolitical Tensions on Southeast Asian Trade Agreements

The interplay between U.S.-China geopolitical tensions and Southeast Asia's trade dynamics has never been more volatile. As the U.S. and China vie for influence, regional players like Thailand and Cambodia find themselves caught in a crossfire of economic coercion and diplomatic maneuvering. At the heart of this tension lies a pivotal question: How is U.S. leverage over trade deals reshaping conflict resolution and investment risk in the region? The answer, as recent events reveal, is deeply intertwined with the Trump administration's aggressive trade policies and their cascading effects on Southeast Asia.

The Trump Doctrine: Tariffs as Diplomatic Leverage

The Trump administration's 2025 trade strategy has taken a hardline approach, using tariffs as a tool to pressure nations into aligning with U.S. geopolitical interests. Thailand and Cambodia, embroiled in a deadly border conflict since July 2025, have become test cases for this strategy. The U.S. imposed a 36% tariff on most exports from both countries, threatening to escalate to 49% for Cambodia, unless hostilities ceased. This move was not merely economic but symbolic: it signaled that trade access is conditional on regional stability and U.S. foreign policy priorities.

The logic is clear. Thailand and Cambodia, both significant U.S. trade partners, rely heavily on U.S. markets. Thailand's $55 billion annual exports to the U.S. and Cambodia's $10 billion in textile and garment exports are now under threat. By linking trade concessions to conflict resolution, the U.S. has forced both nations to prioritize de-escalation. This approach mirrors Trump's broader “America First” strategy, where economic power is weaponized to reshape global dynamics.

Investment Risk: A New Normal

The immediate fallout has been a surge in investment risk for Southeast Asia. The Thailand-Cambodia border conflict, which displaced 168,000 people and disrupted a $1.2 billion annual trade corridor, has already triggered a 12% drop in Cambodia's stock market and a 0.3% depreciation of the Thai baht. Investors are now recalibrating their risk assessments, with sectors like tourism, retail, and logistics bearing the brunt of the instability.

For Thailand, the automotive and electronics industries—key export sectors—are particularly vulnerable. A 36% tariff on Thai exports to the U.S. could erode their competitive edge, forcing companies to diversify supply chains or shift production to Vietnam and Indonesia, which have secured lower U.S. tariffs. Cambodia, meanwhile, faces a more existential crisis. Its labor-intensive textile sector, which accounts for 9% of GDP, is under siege. The closure of seven border crossings and the destruction of a UNESCO World Heritage Site have compounded economic vulnerabilities, pushing Cambodia toward a 70% drop in international tourist arrivals in July 2025 alone.

Regional Conflict Resolution: A U.S.-Led Narrative

The U.S. has positioned itself as an arbiter of regional stability, leveraging its trade power to mediate the Thailand-Cambodia conflict. President Trump's direct calls with Thai and Cambodian leaders, coupled with public warnings about trade deals, have created a high-stakes diplomatic environment. While Cambodia has agreed to an “immediate and unconditional ceasefire,” Thailand has demanded “sincere intention” from its neighbor before halting hostilities. This asymmetry underscores the fragility of U.S.-brokered diplomacy, where economic incentives are both a carrot and a stick.

The broader implication is that U.S. trade policy is redefining conflict resolution mechanisms in Southeast Asia. Traditional multilateral frameworks, such as ASEAN's emphasis on non-interference, are being sidelined in favor of bilateral U.S. pressure. This shift risks fragmenting regional cohesion, as countries like Vietnam and Indonesia, which have secured lower U.S. tariffs, gain strategic advantages over their neighbors. The result is a zero-sum game where economic alignment with the U.S. becomes a proxy for geopolitical loyalty.

Investment Advice: Navigating the New Landscape

For investors, the message is clear: Southeast Asia's trade landscape is no longer predictable. The U.S.-China rivalry, amplified by Trump's trade leverage, has created a volatile environment where policy shifts can upend markets overnight. Here's how to adapt:

1. Diversify Exposure: Avoid overconcentration in Thailand and Cambodia's export-dependent sectors. Redirect capital to Vietnam or Indonesia, which have secured more favorable U.S. trade terms.
2. Hedge Against Geopolitical Risks: Allocate to defensive sectors like utilities, healthcare, and fintech, which are less sensitive to trade volatility.
3. Monitor Currency Movements: The Thai baht and Cambodian riel are likely to remain under pressure. Consider hedging through currency derivatives or dollar-denominated assets.
4. Engage in Long-Term Strategic Sectors: Invest in value-added industries (e.g., semiconductors, renewable energy) that are less vulnerable to tariff shocks and more aligned with global decarbonization trends.

Conclusion: A Shifting Paradigm

The Trump administration's use of trade leverage in Southeast Asia marks a paradigm shift in how geopolitical tensions are managed. By weaponizing tariffs, the U.S. has redefined the rules of engagement, forcing nations to prioritize economic survival over regional solidarity. For Thailand and Cambodia, the stakes are existential: their ability to navigate this new reality will determine not just their trade prospects but their geopolitical survival.

Investors must act with urgency and precision. The era of stable, predictable trade agreements in Southeast Asia is over. What remains is a landscape of calculated risks and strategic realignments—opportunities for those who dare to adapt.