Southeast Asia Drew a Record $243.9 Billion in FDI in 2025 — Now It Has to Defend It

By Grace Kim

ASEAN pulled in a record $243.9 billion in foreign direct investment in 2025. That headline number, reported by the bloc's investment tracker, is the region's strongest proof yet that great-power rivalry pays — and its clearest warning that the same rivalry can take the money back.

Conflict, U.S.-China strategic competition and economic nationalism all threaten those gains, argues Lynn Kuok in a Fortune commentary. Sustaining the boom, she writes, means protecting the security, supply lines and rules that commerce rests on.

What threatens the money?

Start with energy. The U.S. war against Iran disrupted oil and gas supplies to a region that leans heavily on the Middle East. Higher energy prices raise business costs, squeeze household budgets and push up loan-default risk.

The Strait of Hormuz also showed how a strategic waterway can become an instrument of coercion — even wielded by a militarily weaker power. That lesson lands hard in the Straits of Malacca and Singapore, which carry nearly a quarter of global seaborne trade. In August, Indonesia, Malaysia and Singapore reaffirmed their commitment to keeping those waterways free, open and safe. But that pledge doesn't preclude a littoral government restricting passage, an outside power pressuring it to do so, or a state or non-state actor disrupting shipping.

The military map is shifting too. In October 2025, China began its first significant island-building in the South China Sea in almost a decade at Antelope Reef, where it is building a runway; the reef is now China's largest outpost in the disputed Paracel Islands. In September, China announced a joint military aviation training facility in Laos — its third overseas military base. Beijing has also expanded its presence in waters east of Taiwan, where Japan and the Philippines hold overlapping exclusive economic zones. Kuok warns that a shift in the regional balance of power could increase vulnerability to coercion and affect the rules governing trade and investment.

How do tariffs and export controls bite?

Rivalry has produced winners: higher U.S. tariffs on Chinese goods pushed manufacturers to shift production into the region. But the same dynamics cut the other way. U.S. licensing requirements for shipments of certain advanced chips to China can delay or block sales by regional distributors. Under U.S. pressure, Malaysia introduced its own controls, including 30-day advance notification for specified advanced chips moving through or out of the country.

Washington's economic nationalism is a separate challenge — one that extends beyond the China rivalry. Tariffs have hit the whole region, including U.S. allies and partners, even Singapore, with which the United States runs goods and services surpluses. Vietnam, which ran a $178.3 billion goods surplus with the U.S. in 2025, has drawn particular scrutiny.

The courts haven't stopped the pressure. After the U.S. Supreme Court's February ruling that the emergency law did not authorize Trump's "Liberation Day" tariffs, the administration turned to temporary tariff powers and Section 301 investigations into alleged excess manufacturing capacity and forced-labor enforcement failures. The latter produced July tariffs on all 60 economies investigated, including several in Southeast Asia.

Kuok's advice: understand what Washington actually wants. The administration has cited reciprocity, deficit reduction, protecting domestic industry, raising revenue, reducing strategic dependence and denying capabilities to a rival. Trade concessions won't remove restrictions designed to deny China strategic capabilities, and moving production from China to Vietnam won't satisfy demands for production in the United States.

Are the region's backups real?

Diversification can mislead. Multiple suppliers may still depend on the same shipping routes or Taiwanese semiconductor foundries.

Energy exposure remains acute. The revised ASEAN Framework Agreement on Petroleum Security has yet to enter into force — and even once it does, assistance during critical shortages stays voluntary and subject to commercial terms. The ASEAN Power Grid could diversify electricity supplies, but a regional system remains elusive nearly three decades after leaders first called for it.

Nuclear is emerging as an answer, with strings attached. Vietnam has signed an agreement with Russia for its first plant; an Indonesian company has agreed to buy electricity from two Rosatom floating nuclear units; the Philippines has discussed nuclear cooperation with Moscow. Russian reactors, however, could create long-term dependence on Russia for technology, fuel, spare parts and support. Energy insecurity has also lent urgency to Philippine-Chinese talks on joint oil and gas development in the South China Sea — a deal whose benefits must be weighed against maritime rights and potential dependence on Beijing.

What should governments and companies do?

Resilience itself deters, by shrinking what hostile actors expect to gain from disruption. A World Economic Forum report — to which Kuok contributed — urges joint vulnerability assessments, standards setting, communication mechanisms and response planning for critical infrastructure, including subsea cables, ports and data centers.

Her closing argument is the sharpest: economic rules provide predictability and recourse, international law protects freedom of the seas, and upholding it may cause friction — but "not wanting to choose sides should not be an excuse for failing to defend the rules." For companies counting on that record FDI number, the message is blunt: keeping Southeast Asia's commercial options open will require taking a stand.

Kuok speaks at the Southeast Asia 500 Summit on Nov. 3 in Ho Chi Minh City.