Will Southeast Asian Countries Pass the US’ Heightened Export Controls?

Trump 2.0 has inherited recently strengthened export controls that block access to US chips and technologies from its adversaries. The third package of export controls, issued by the Biden Administration on 3 December 2024, carry provisions on extraterritorial Foreign-Direct Product Rule (FDPR). This means that goods under the US government’s Commerce Control List produced outside the US but with US-origin components or technologies may be subjected to export controls. 

The third package of export controls will affect semiconductor-manufacturing equipment (machines used to manufacture semiconductors) produced in Malaysia and Singapore. Currently, Singapore is a major exporter of semiconductor-manufacturing equipment to China. In 2023, Singapore exported US$6.4 billion of such equipment to China, compared to only US$1.5 billion to the US (Table 1). Malaysia’s exports of semiconductor-manufacturing equipment to China (US$23 million) were also significant, although they were lower than those to the US (US$117 million).   

Table 1: Southeast Asian economies’ semiconductor-manufacturing equipment trade with China and the US, 2023 (in US$)

Other Southeast Asian countries such as Vietnam, the Philippines, Thailand, and Indonesia export integrated circuits and parts to China, with manufacturing operations at various stages of supply chains, namely assembly, packaging, and testing. In 2023, Vietnam exported US$6.9 billion worth of integrated circuits and parts to China, while the Philippines exported US$3.3 billion (Table 2). These exports could be subjected to present and future FDPR depending on how much they carry US-origin components or technologies.    

Table 2: Southeast Asian economies’ integrated circuits and parts trade with China and the US, 2023 (in US$)  

The US export controls are also likely to impact foreign investments. Since 2018, Malaysia and Singapore have experienced significant increases in foreign direct investment in semiconductors as companies seek to diversify away from China to disperse risks, lower costs, find new markets, and divert trade destined for the US (the “China Plus One” strategy). The export controls, by inhibiting exports to certain countries, raising operational inefficiencies and custom compliance costs, and disrupting input and output flows, will reduce profits and increase production costs, reducing the attractiveness of investing in Southeast Asia’s semiconductor industry.    

The US export controls could also complicate R&D collaboration and regional integration in semiconductor supply chains if the rules result in countries being sorted based on perceived risks to US national security. The tier-based export controls on artificial intelligence (AI) chips used to power data centres, announced on 13 January 2025, portend such potential scenarios. This plan will group global countries into three tiers — US allies, adversaries and the rest — each with different access to US AI chips and constraints on where they can export their computing power. All Southeast Asian countries, except Cambodia and Myanmar, which are among the 22 arms-embargoed countries, will fall into the Tier-2 group (“the rest”) — but even they may have different country caps and limits on export destinations of computing power. Limited access to US-origin advanced AI chips for data centres may also hamper data centre development in the region, including in Malaysia and Singapore. 

What can Southeast Asian businesses and governments do in the short, medium and long run? 

In the short run, Southeast Asian businesses whose exports could be significantly impacted, such as the semiconductor-manufacturing equipment producers in Malaysia and Singapore, could negotiate with the US government to exclude certain products from the Commerce Control List or companies from the Entity List, or to get exempted from the FDPR. Export-oriented businesses, especially in larger economies, could focus on domestic markets or reorient their exports to other countries not targeted by US export controls. Companies could exercise extra due diligence in terms of compliance with US export controls to avoid being blacklisted. In the meantime, governments could protect businesses better with an export control law or strategic trade management, which some Southeast Asian countries do not have right now, since it gives legal certainties on what can and cannot be exported to businesses trading sensitive — often dual-use — advanced technologies.   

The export controls will reduce profits and increase production costs, stymieing the attractiveness of investing in Southeast Asia’s semiconductor industry.

In the medium run, semiconductor businesses in Southeast Asia could build a more robust and resilient regional semiconductor production ecosystem by forging stronger supply chain integration, from R&D to manufacturing to logistics, especially since Southeast Asian countries have different comparative advantages and have been specialising in different stages of the semiconductor value chains. 

Southeast Asian countries with varying comparative advantages along the semiconductor supply chains could attract more investment in the semiconductor industry from the European Union (especially the Netherlands and Germany) and East Asian countries, namely South Korea and Japan. These countries are all US allies, but their semiconductor powerhouses may have their own indigenised, non-US-originating technologies.    

In the long run, Southeast Asia could accelerate R&D capacities at both the factory level and the national level, including through collaboration among countries with varying capacities, with the involvement of multinational companies, university research, and state-sponsored R&D agencies such as Singapore’s A*Star. They could improve regional and domestic capacities to produce more highly skilled technicians and engineers ready to work in the semiconductor sector. 

A Chinese saying goes, “A cornered dog will jump over the wall”.  Intensifying US export controls may be cornering not only China but also Southeast Asian countries, compelling them to imagine the seemingly impossible, including reducing reliance on foreign technology and talent. The region will need to scale the walls together.

2025/23