Navigating the Impact of Trump’s New Tariffs on Southeast Asia: A Venture Capital Perspective

The recent announcement of steep tariffs by the Trump administration has sent shockwaves through Southeast Asia, a region heavily reliant on exports and deeply integrated into global supply chains. With levies ranging from 10% to as high as 49% on goods exported to the United States, the economic implications for ASEAN countries are profound. As a venture capital firm with a portfolio of high-growth startups in the region, TNB Aura sees these developments as both a challenge and an opportunity to rethink strategies, adapt to shifting dynamics, and position for long-term resilience.

A Blow to Export-Driven Growth

Southeast Asia’s economic engine has long been fueled by exports, particularly in tech and manufacturing sectors. Countries like Vietnam and Thailand have emerged as key players in global trade, with Vietnam exporting $48.5 billion worth of tech goods to the US in 2024 alone. However, with $22.3 billion of those exports now subject to tariffs, the region’s competitive edge is under threat.

For startups in export-driven sectors, especially those producing hardware or tech components, the immediate impact is clear: higher costs, reduced competitiveness, and therefore, a decline in potential revenue. The ripple effects could extend beyond individual companies to entire supply chains, creating operational bottlenecks and slowing regional economic growth.

The China-Plus-One Strategy on Pause?

Over the past decade, Southeast Asia has benefited from the “China-plus-one” strategy, as multinational corporations sought to diversify their supply chains away from China amidst rising US-China trade tensions. Countries like Vietnam and Malaysia became attractive alternatives for manufacturing and investment. However, Trump’s latest tariffs have narrowed the gap between exporting from China versus Southeast Asia, Vietnamese exports now face reciprocal duties of up to 46%, compared to over 65% (or seemingly higher) for Chinese goods.

This shift could deter future foreign direct investment (FDI) into ASEAN markets, which has been a key driver of growth for many startups in the region. For venture-backed companies that rely on partnerships with multinational corporations or foreign investors, this development raises questions about how best to position themselves in an increasingly protectionist global trade environment.

To state the obvious, this situation remains highly fluid, with countries like Vietnam exploring potential solutions to mitigate the impact. For instance, Vietnam has proposed reducing its tariffs on US products to 0%, in exchange for the US offering similar tariff reductions on Vietnamese goods. Such moves reflect the ongoing negotiations and shifting dynamics within global trade, highlighting the fluid nature of this environment. These potential changes could offer new opportunities for startups, especially those positioned to capitalise on evolving trade relationships and tariff adjustments.

Economic Headwinds and Growth Downgrades

The broader economic impact of these tariffs cannot be overstated. Research firms have already downgraded growth forecasts across Southeast Asia: Vietnam’s projected growth rate for 2025 has been revised down from 6.2% to 5%, while Thailand’s has dropped from 2.8% to 2%. Notably, these reductions are less than those projected for most developed markets. Slower economic growth will likely dampen consumer spending and investment activity, creating challenges for startups in sectors like e-commerce, fintech, and logistics that depend on robust domestic markets. At a high level, we are witnessing a cascade of economic impacts stemming from the recent tariff shifts, which are not only affecting companies directly engaged in exports but also creating ripple effects throughout adjacent sectors and signaling longer-term changes in how businesses will navigate this evolving economic landscape. At TNB Aura, we have been using an ‘orders of impact’ framework to think through these implications.

First-order effects are already being felt by companies that sell directly into the US market. These businesses face immediate disruptions, reduced demand, thinner margins, and increased scrutiny over cost structures, as tariffs drive up prices and dampen competitiveness. Export-oriented startups, particularly those in consumer electronics, apparel, and industrial components, are under pressure to either absorb higher costs or shift production and distribution strategies to maintain access to their most valuable markets.

Second-order effects from Trump’s tariffs will further alter the structure of regional supply chains, influencing both upstream and downstream segments. Upstream providers, i.e., those that furnish raw materials, components, or critical services to exporters, logistics firms, and international marketplaces, are confronting indirect disruptions as the shrinking demand from tariff-hit companies begin to reduce their order volumes. Meanwhile, downstream firms, which depend on these suppliers for the production of finished goods, experience pressure when their upstream partners encounter declining US-bound sales or are forced to absorb increased costs. While some downstream players might find new opportunities through alternative supply routes, many are grappling with greater volatility and a more fragmented trade environment that complicates their cost structures and strategic planning.

Third-order effects will emerge over the medium to long term. As economic momentum slows, consumer confidence weakens, and capital becomes more cautious, startups operating primarily in domestic markets could face tighter wallets and lengthening sales cycles. Structural shifts in investor sentiment, toward capital efficiency, clear unit economics, and sustainable growth, will shape how companies are funded and scaled in this new environment. For founders and VCs alike, this period demands strategic clarity, sharper execution, and a long-term orientation toward resilience.

Opportunities Amidst Adversity

While the new tariffs undoubtedly present challenges, they also create opportunities for innovation and adaptation.

Diversification of Demand and Markets

As the US market faces heightened uncertainty, startups in affected sectors have a heightened impetus to diversify their revenue streams by targeting alternative markets. By focusing on geographically diverse customer bases, startups can reduce their exposure to one market’s volatility.

In the near-term, regional trade agreements such as the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) offer key advantages in this shifting landscape. These agreements facilitate smoother trade flows within the Asia-Pacific region, providing startups with preferential tariff rates and reduced regulatory burdens. Companies can seize this opportunity to expand cross-border operations within these regions, accessing lower-cost markets and improved market access. By aligning product offerings and logistics to take advantage of these agreements, startups can position themselves as dominant players in their regional markets while mitigating the impact of global trade friction.

Refocusing on Core Markets and Defensibility

In times of global uncertainty, a strategic shift toward deepening penetration in domestic markets is often a natural outcome. By honing in on the “mother market,” startups can focus on building stronger relationships with local customers, ensuring their value propositions are deeply entrenched before expanding internationally. Strengthening this core base not only builds a solid foundation for future expansion but also creates a competitive moat as regional players may struggle to keep up with startups that have already solidified their positions. This internal focus ensures a more sustainable growth trajectory, providing stability when external markets face headwinds.

Capital Efficiency as a Competitive Edge

With a greater risk-off stance in the market, the opportunity for startups is clear: become more capital efficient. This shift away from growth at all costs means a more focused approach to spending, scaling, and investing in areas that directly drive profitability. Startups that can master unit economics, optimise cost structures, and demonstrate clear paths to profitability will differentiate themselves in an environment where capital is more constrained. This focus on sustainable growth will attract investors looking for startups that can thrive even in turbulent times, making capital efficiency a true competitive advantage.

Growth in Non-Goods Sectors

The tariffs may be a significant challenge for companies dealing with physical goods, but startups in digital services, software, fintech, edtech, and other non-goods sectors remain largely insulated from their first-order impacts. These sectors continue to benefit from secular growth trends, such as the increasing reliance on digital solutions and the ongoing shift to cloud-based infrastructure. For these businesses, the opportunity lies in accelerating expansion and capturing more market share in regions where digital adoption is soaring. The broader trend toward digital transformation offers a tailwind that mitigates the need to navigate the complex web of tariffs affecting traditional manufacturing.

 

While these opportunities present a path forward for startups navigating the complexities of the current economic climate, it’s important to recognise that seizing them requires not only strategic foresight but also robust support. In this period of heightened uncertainty, the role of venture capital is more critical than ever. VCs, with their experience, networks, and resources, are uniquely positioned to help companies weather the storm, pivot effectively, and scale sustainably. As we move forward, it’s vital for venture capital firms to not only back innovation but also to empower founders with the tools, insights, and capital necessary to build long-term resilience in the face of external shocks.

The Role of Venture Capital in Supporting Resilience

As investors, we see it as our responsibility not only to provide capital but also to offer strategic guidance during times of disruption. At TNB Aura, we are working closely with our portfolio companies to reassess their market strategies, optimise operations, and explore new growth opportunities.

Additionally, we believe that Southeast Asia’s long-term fundamentals remain strong. The region’s young population, growing middle class, and increasing digital adoption continue to make it an attractive hub for innovation and entrepreneurship. While the current tariffs may slow growth in the short term, they also underscore the importance of building resilient businesses that can thrive despite external shocks.

Looking Ahead

The new tariffs are a wake-up call for Southeast Asia, and for all stakeholders invested in its future, to rethink how we approach global trade and economic integration. For startups backed by TNB Aura and other venture capital firms, this is an opportunity to demonstrate resilience by adapting quickly and strategically.

While protectionist policies may reshape global supply chains temporarily, we remain confident that Southeast Asia will continue to play a pivotal role in the global economy over the long term. By leveraging regional trade agreements, fostering innovation, and embracing diversification strategies, startups can not only weather this storm but emerge stronger on the other side.

At TNB Aura, we are committed to supporting our portfolio companies through these challenges while continuing to champion Southeast Asia as a hub for entrepreneurial excellence and innovation.

 

Contributed by: Charles Wong