Food, Fighter Jets Eyed as Southeast Asia Seeks to Avert Tariffs

Southeast Asia’s dual focus on food security and defense modernization has taken on new urgency amid escalating U.S. tariffs and geopolitical tensions. As Washington’s “Liberation Day” tariffs threaten export revenues and supply chains, nations like Malaysia, Vietnam, and Cambodia are pivoting to China and reconfiguring regional alliances to shield their economies. Investors should monitor this realignment closely—opportunities are emerging in food production, infrastructure, and defense tech, while risks arise from debt-driven infrastructure projects and U.S.-China supply chain fragmentation.

Food: Diversifying Trade and Boosting Local Production

The region’s food industry is at the forefront of tariff avoidance. U.S. tariffs averaging 46% on goods like Vietnamese seafood and Indonesian palm oil have spurred two key strategies:

1. Trade Diversification:
2. Malaysia-China Ties: Bilateral trade hit $212 billion in 2024, with Malaysia importing 90% of its food staples from non-U.S. sources. Chinese-funded infrastructure like the East Coast Rail Link (ECRL) is enhancing logistics for palm oil and tropical fruit exports.

3. RCEP Integration: The Regional Comprehensive Economic Partnership has slashed tariffs for 90% of intra-ASEAN goods. Vietnam’s seafood exports to the EU rose 20% in 2024 under RCEP, bypassing U.S. markets.

4. Local Production Gains:

5. Singapore’s investments in regional farmland and tech-driven farming (e.g., vertical farms) aim to reduce reliance on imported wheat and soybeans.
6. Thailand’s rice output is projected to hit 24 million tons in 2025, up 5% from 2024, thanks to Japanese-backed irrigation projects.

Defense: Balancing U.S. Alliances with Chinese Tech

While food sectors diversify trade, defense industries are navigating a geopolitical tightrope. ASEAN nations are upgrading military capabilities while avoiding overt alignment with either superpower:

1. Chinese Tech Partnerships:
2. Malaysia’s BeiDou satellite integration into logistics networks also benefits defense surveillance.

3. Cambodia’s Ream Naval Base, upgraded with Chinese funding, now hosts joint patrols in the South China Sea.

4. U.S. Ties Under Strain:

5. The Philippines continues receiving U.S. F-16s and patrol boats, but its 2024 defense budget rose only 2% amid tariff-driven inflation.
6. Vietnam’s $500 million U.S. military aid package in 2024 now faces scrutiny as Hanoi deepens ties with Beijing.

Investment Themes to Watch

1. Agricultural Logistics: Companies like Wilmar International (F34.SI), a palm oil giant with Chinese backing, are expanding storage and processing hubs to capitalize on regional trade.
2. Defense Tech: Thai Defense Industries (TII.BK), a supplier of radar systems and drones, is benefiting from Thailand’s $12 billion defense modernization plan.
3. Infrastructure Plays: Firms involved in Belt and Road projects, such as Gamuda (GAMUDA.KL) in Malaysia’s ECRL, could see demand rise—but investors must weigh debt risks.

Risks and Caution Flags

• Debt Sustainability: Malaysia’s renegotiation of BRI loans in 2023 highlights risks of over-leverage.
• Supply Chain Fragmentation: U.S.-China decoupling could disrupt dual-use industries like semiconductors.

Conclusion: A Region in Transition

Southeast Asia’s dual-track strategy—bolstering food resilience and defense tech while balancing U.S.-China ties—is creating sector-specific opportunities. The region’s 2025 GDP growth forecast of 5% (World Bank) hinges on successful tariff mitigation. Investors should prioritize firms with exposure to intra-ASEAN trade (e.g., RCEP beneficiaries) and regional infrastructure, while avoiding sectors overly reliant on U.S. markets.

The stakes are high: if ASEAN can harmonize trade policies and leverage its 700 million-strong consumer base, it could emerge as a price-setting bloc. Failure could deepen reliance on China, risking long-term economic sovereignty. Monitor these trends closely—Southeast Asia’s next chapter is being written now.