The intensifying US-China trade war, marked by soaring tariffs in 2025, is reshaping global economics with significant ripple effects on Southeast Asia’s burgeoning data center industry. As the region navigates economic challenges and capitalizes on new opportunities, the trade war presents both hurdles and potential growth for data center investments. Here’s a deep dive into how these dynamics are unfolding and what they mean for Southeast Asia.
The Trade War Landscape
As of April 2025, the US has imposed tariffs as high as 145% on Chinese goods, with China retaliating at 125% on US imports. Southeast Asian nations, critical players in global supply chains, face US tariffs ranging from 10% (Singapore) to 49% (Cambodia). These levies threaten export-driven economies, with the International Monetary Fund (IMF) warning of a 0.5% GDP contraction across emerging markets due to trade disruptions. For Southeast Asia, this could mean tighter budgets and delayed infrastructure projects, including data centers.
Nancy Qian, an economics professor at Northwestern University, highlighted the broader impact: “Business relationships that took decades to build are now being paused… the cost for both economies is going to be colossal.” This economic strain extends to Southeast Asia, where disrupted supply chains and rising costs could slow data center development, particularly in countries like Vietnam (46% tariff) and Thailand (37%).
Challenges for Data Center Investments
The trade war’s immediate effect is increased costs and uncertainty. Up to 80% of materials used in data centers, such as semiconductors and fiber optics, could face higher prices due to tariffs, according to James Rix, JLL’s Head of Data Centers and Industrial Malaysia. Rare earth minerals like gallium and germanium—essential for 5G antennas and chips—are predominantly sourced from China. While Malaysia and India are exploring alternatives, scaling production could take years, potentially causing price surges and project delays.
Smaller economies like Laos may struggle most, as a 90-day tariff reprieve (excluding China) prioritizes negotiations with larger players. The World Trade Organization estimates an 80% drop in US-China goods trade, which could disrupt supply chains further, delaying data center projects under construction or in planning stages. For instance, Vietnam’s rapid data center growth might face setbacks if economic slowdowns reduce investment inflows.
Opportunities Amid Disruption
Despite these challenges, the trade war is driving a silver lining for Southeast Asia’s data center sector. As companies pivot from China to avoid US tariffs, the “China+1” strategy is boosting manufacturing in countries like Vietnam, Thailand, and Malaysia. This shift could enhance local hardware production, reducing reliance on Chinese imports and making Southeast Asia a more attractive hub for data center investments.
Rix notes a potential “resurgence of the use of Southeast Asia’s manufactured components” for regional facilities, as US-based firms expand their ASEAN manufacturing bases. This could lower costs and stabilize supply chains for data centers. Moreover, Southeast Asia’s digital economy is thriving—data usage is projected to hit 28.9 GB per user by 2025, with investments expected to reach USD 17.73 billion by 2029 at a 9.59% CAGR. Demand for AI, cloud computing, and 5G continues to fuel growth, potentially offsetting trade war impacts.
Vivian Wong, Senior Analyst at DC Byte, sees the 90-day reprieve as a window for strategic planning. “ASEAN is strengthening intra-regional cooperation… to mitigate the potential impacts,” she says, citing efforts like the ASEAN Digital Economy Framework. These initiatives could bolster economic resilience, ensuring data center investments remain robust.
Regionalization and Long-Term Outlook
The trade war is accelerating regionalization, pushing companies to diversify supply chains beyond China. An Indonesian former trade official emphasized the need to “build up local manufacturing capability to weather this tariff tsunami.” For data centers, this means Southeast Asia could emerge as a self-sufficient hub, less vulnerable to global trade shocks.
However, risks remain. Nobel Prize-winning economist Joseph Stiglitz warns that Trump’s policies could cause “lasting damage,” with unrealistic expectations of reviving US manufacturing. If China redirects US-bound goods to Southeast Asia, anti-dumping laws in countries like Malaysia could mitigate oversupply, but price hikes reminiscent of post-pandemic disruptions are likely.
Southeast Asia’s data center sector stands at a crossroads. High tariffs and economic uncertainty pose real threats, potentially delaying projects and raising costs. Yet, the region’s role as a manufacturing alternative and its digital economy boom offer significant growth potential. With strategic regional cooperation and supply chain diversification, Southeast Asia can navigate the trade war’s challenges and solidify its position as a global data center powerhouse.
As the US-China trade war deepens, Southeast Asia’s ability to adapt will determine whether its data center investments soar or stumble. For now, the region is poised to balance adversity with opportunity, leveraging its strengths to thrive in a turbulent economic landscape.
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