TAIPEI (Taiwan News) — Taiwan’s New Southbound Policy (NSP) is losing momentum as its companies in Southeast Asia face new US tariffs and geopolitical headwinds, Nikkei Asia reported Tuesday.
On the outskirts of Pemalang in Central Java, Taiwanese textile maker Tuntex is building a 14-hectare factory complex to consolidate operations. The NT$1.9 billion (US$62 million) project is Tuntex’s largest overseas investment since it pulled out of China in 2020.
Backed by the NSP, the Pemalang project is part of a broader push to expand trade and investment ties across Southeast and South Asia. Tuntex Production Manager Lin Ming-wang (林明旺) said the policy helped secure funding, adding that once operational in 2027, the new plant will account for 60% of the company’s global output.
Tuntex’s complete withdrawal from China contrasts with Taiwanese peers that keep part of their production there. The shift reflects efforts to de-risk amid US-China tensions and diversify under the NSP, launched in 2016 to reduce economic dependence on the mainland.
However, as Taiwanese firms settle in Southeast Asia, they face fresh challenges. US tariff policies, tightening credit, and Beijing’s influence in ASEAN markets are reshaping an environment once seen as a refuge from geopolitical risk.
The Ministry of Economic Affairs says Taiwan’s investment in ASEAN surpassed that in China for the first time in 2023, reaching about NT$260.16 billion last year. Yet momentum has slowed as manufacturers confront rising costs and softening global demand.
Taiwan’s banks have followed clients into Southeast Asia, expanding their presence and lending. By mid-2025, Taiwanese financial institutions held NT$1.8 trillion in ASEAN assets, up from NT$1.2 trillion in 2019. Still, competition remains fierce. A Bank SinoPac spokesperson in Vietnam said limited branch operations make it harder to compete with local lenders.
Analysts warn that reducing exposure to China has created new dependencies. CRIF data manager Edward Liu said 66% of mid-sized Taiwanese subsidiaries in ASEAN now face tariffs above 30%, while many have yet to turn a profit.
“They left China not entirely by choice,” he said. “Now they are finding the environment in ASEAN tougher than expected.”
Under President Lai Ching-te (賴清德), who took office last year, Taiwan’s foreign strategy has shifted from regional geography to ideological alignment, prioritizing “like-minded democracies” and non-red supply chains. Critics argue this risks sidelining ASEAN integration.
“ASEAN countries emphasize neutrality but lean toward China due to Belt and Road investments,” said Lee Ming-hsun (李明勳) of the Chung-Hua Institution for Economic Research (CIER). Natixis economist Alicia Garcia-Herrero echoed that view, warning that China is tightening its control over Taiwan-related trade in the region.
Meanwhile, the US has overtaken China as Taiwan’s top investment destination, accounting for nearly 30% of total foreign direct investment last year. Closer alignment with Washington has also exposed Taiwanese firms to new tariffs, recently reduced from 32% to 20%.
Tuntex and other non-tech manufacturers report shrinking orders and delayed expansion plans. “We have not received Christmas-season orders as we normally would,” Lin said, noting that extra tariff costs are eating into profits. “The next one to two years will be difficult.”
Experts say the NSP risks stagnation if not updated for a more polarized global economy. “If the policy does not evolve with the times, it will fall out of sync with reality,” Lee commented.
One bright spot is the Philippines, where ties with Taiwan have deepened amid shared security concerns. In the first eight months of this year, 13 new Taiwanese projects worth NT$1.71 billion were approved, creating over 2,000 jobs, mostly in electronics and IT.
The Philippines is currently the most important partner under the New Southbound Policy, Lee said. Recent agreements on education, renewable energy, and travel show growing cooperation between Manila and Taipei.
Tuntex is betting on sustainability to stay ahead. “We have made major efforts in ESG compliance,” Lin said. “When environmental tariffs become mainstream, many of our competitors that failed to prepare will fall behind.”
Yet geopolitics remains an ever-present risk. “Being a Taiwanese company means being caught in the middle,” Lin said. “We must constantly reassure clients about supply stability in case of a conflict across the strait.”