Shocking tariffs on ASEAN: How will data centers hold up?

Market meltdown, recession, global trade destruction, slower growth, higher unemployment, stagflation, trade war, weaponizing tariffs – these are some of the words thrown around by market experts around the world following US President Donald Trump’s higher than expected tariffs imposed on trade foes and allies alike yesterday. The verdict was mostly negative but many also believe there would be a lot of trade negotiations down the road between the US and tariff-hit countries to pare down those tariffs. The premise is that the tariffs could be just the first salvo or negotiation starting points for further talks to balance bilateral tariff rates. A few even believe prices would go down as countries start lowering their tariffs to adjust to the new trade landscape.

US new tariff rates on ASEAN range from 10% (Singapore) to 49% (Cambodia) reflecting how the US views imports from these countries, in particular, how some companies in China have relocated some of their factories to neighbouring ASEAN countries under the “China +1” strategy to circumvent US’s tariffs hike in the ongoing US-China trade war. Cambodia, Vietnam, Laos and Myanmar were particularly targeted. Apart from Vietnam however, the other Indochinese countries have very minimal data center footprint.

ASEAN’s data center hubs like Singapore, Malaysia and Indonesia were spared the steepest rates. Hence, each country’s response would vary according to the quantum of the hikes slapped on them. An ASEAN-wide coordinated response is highly unlikely given the wide divergence in the hikes.

According to Vivian Wong, DC Byte’s senior analyst, Malaysia is a key market for U.S. hyperscalers expanding into Southeast Asia, including Amazon Web Services, Microsoft, and Google. Their self-build plans in Malaysia contribute to approximately 16% of the national aggregate data centre market composition — the highest among emerging Southeast Asian markets. While Malaysia plays a role in the U.S. semiconductor supply chain, it also relies on imports for key data centre infrastructure such as proprietary cooling systems, and specialised materials, making it important to monitor Malaysia’s position in light of the new tariffs.

CBRE has estimated a 3-5% increase in data centre costs due to tariff hikes on steel, aluminium, and copper. “There will be increased costs for data centre (DC) projects,” Wong told W.Media. “That said, Malaysia is currently the most cost-efficient location for data centres in Southeast Asia compared to areas such as Batam, which also has a special economic zone to attract foreign investments in the sector. Factors like land availability, infrastructure (power & water), and supportive government policies continue to drive Malaysia’s data centre growth, and sustainability is an increasing area of focus.”

Wong noted that Malaysia accounts for half of the planned data centre capacity in Southeast Asia. However, if the tariffs significantly disadvantage Malaysia, there is a possibility that expansion plans may be reassessed.

Despite this, Wong believes that Malaysia has an actively developing local supply chain, which could help mitigate the impact of external factors in the future. “In the DC space, we are seeing more local players participating in new projects, most recently EPG establishing a new facility in Johor, supporting prefabricated (modular) data centre products. Additionally, some operators in Malaysia leverage supply chains from China, which diversifies sourcing and reduces dependency on any single market.”

SEA-5 Market Data (Source: DC Byte)

The definitions for each category are as follows:

• Live IT Capacity: IT power that is currently live, fully fitted out with mechanical and electrical infrastructure.
• Under Construction Capacity: the estimated IT power that is currently having the mechanical and electrical plant installed to support it.
• Committed Capacity: the estimated IT power that has a high likelihood to be added to a market’s overall supply; however, it does not refer to sold data centre space. This includes powered shell data centres.
• Early Stage Capacity: IT power that has been announced or speculated but has not secured all the required elements (government, land, power, etc.) for development.

It’s still early days as the new tariffs are set to take effect on April 9. Most investors are still crunching their numbers. Meanwhile, early Bloomberg Intelligence analyst reports suggest that Apple is unlikely to raise product prices in the near term due to weak global consumer sentiment. The company had recently pledged a US$ 500 billion investment in the US to help ease political tensions, but the majority of its manufacturing remains concentrated outside of the US, especially in China and Southeast Asia.