ASEAN factories face closures, layoffs amid cost shocks driven by war, tariffs

Editor's note: In this weekly feature China Daily gives voice to Asia and its people. The stories presented come mainly from the Asia News Network (ANN), of which China Daily is among its 20 leading titles.

Even with a recent ceasefire in the Middle East, the surge in raw material, energy, and shipping costs — compounded by US tariff measures — continues to squeeze manufacturers, driving factories across Southeast Asia to close and shed jobs.

While strong production in electronics has helped keep headline economic indicators looking relatively resilient, economists and industry leaders warn that deeper stress is spreading through small and medium-sized enterprises across the region.

The manufacturing confidence across Association of Southeast Asian Nations, or ASEAN, remained in positive territory in April, according to S&P Global's Purchasing Managers' Index, but the figure fell to its lowest level in nine months and marked a sharp slowdown from the period before the Iran war.

READ MORE: Southeast Asia looks beyond oil and gas

Firdaos Rosli, chief economist at AmBank in Kuala Lumpur, said Malaysia's April trade figures appeared stronger than expected, with exports growing at a double-digit rate. However, he warned that the headline numbers concealed major differences between sectors.

Rosli said the strength of overall data was masking severe pressure in some businesses, particularly as different parts of the economy were moving at very different speeds.

"For example, logistics, secondary manufacturing and local construction are the groups we expect to be hit hard. Although other thriving businesses may temporarily offset the figures in the national accounts, the distress at the micro level is real," he said.

Malaysia and the Philippines are among the countries hardest hit, with small and medium-sized enterprises facing the greatest risk as higher costs and weaker demand erode already thin margins.

Malaysia

In Malaysia, more than 100 small furniture factories in Muar, the country's largest furniture manufacturing hub, have closed in recent months. Industry players said the impact of the war had worsened pressure already created by tariff measures affecting exports to the United States.

Jeffrey Ng, owner of TKL Furniture, which exports all of its products to the US, said smaller factories were shutting down one after another as operators struggled to absorb rising costs.

"Small factories are beginning to close one after another. Around us, long-established factories are shutting down because they can no longer endure the pressure," he said.

"Smaller operators can no longer withstand the squeeze, so they have to close. Older companies that made money in previous years are choosing to shut down and turn their assets into cash rather than allow their money to keep draining away."

Steve Ong, president of the Johor Furniture Association in southern Malaysia, said the impact of the war extended beyond the countries directly involved in the conflict.

He said global freight transport had been severely disrupted, pushing up shipping costs and prompting foreign customers to delay taking delivery of goods.

A May survey by the Federation of Malaysian Manufacturing found that 28 percent of 225 respondents had either reduced staff or planned to do so as a direct result of the crisis, while 72 percent said their business conditions had worsened.

The Philippines

In the Philippines, government data showed that factories cut about 217,000 jobs in March, equivalent to 5.8 percent of the country's manufacturing workforce.

The country's manufacturing PMI also fell into contraction territory, making it the weakest among ASEAN's six largest economies.

Miguel Chanco, chief emerging Asia economist at UK-based Pantheon Macroeconomics, said Philippine manufacturers were under pressure from both the demand and supply sides, as higher energy costs affected production costs and consumer purchasing power.

He said the Philippines was also more exposed than some neighbors because its export sector had benefited less from the AI hardware boom, which has supported electronics and component shipments in other parts of the region.

Chanco said the Philippine government had a thinner policy cushion than some regional peers, including fewer fuel-related support measures.

Vietnam

Vietnam is also seeing signs of strain despite electronics exports remaining a key driver of growth.

Andrew Harker, economics director at S&P Global Market Intelligence, said the latest survey showed output was still rising, but the pace of expansion had slowed close to stagnation. With new orders beginning to fall, he warned that production could contract in the coming months unless price and supply conditions improve soon.

One of the sectors facing heavy pressure is Vietnam's footwear industry.

Phan Thi Thanh Xuan, vice-president of the Vietnam Leather, Footwear and Handbag Association, said export markets in the Middle East had been effectively frozen by the conflict.

She said a 15 percent rise in transport costs and a 30 percent increase in raw-material prices linked to higher crude oil prices had left local factories in a difficult situation, as many export contracts had already been agreed in advance at fixed prices.

As a result, manufacturers have little room to pass higher costs on to buyers and are being forced to absorb the increase themselves.

Thailand & Indonesia

The surge in crude oil-linked raw-material prices is spreading through supply chains across Southeast Asia.

In Thailand, John Higham, chief commercial officer of Element 6 Evolution, a sailing yacht shipyard near Laem Chabang Port, said the company could no longer ship key composite materials from Dubai by sea.

"The big problem is resin, which is our heaviest main raw material," he said. "We now have to fly in thousands of kilograms of this hazardous cargo instead, because if we do not, the entire factory will have to stop production."

The emergency switch to airfreight has pushed the company's resin costs up by as much as 40 percent.

The cost shock is also spreading in Indonesia, where the Indonesian Employers Association said 10 out of 16 manufacturing sectors were growing far more slowly than the country's overall economic expansion of 5.61 percent in the first quarter.

Higher naphtha prices have directly affected the domestic plastics industry, while the Association of Indonesian Automotive Industries is surveying the impact on supply chains as rising costs and transport delays intensify pressure on manufacturers.

Singapore

As long-distance supply chains become more risky, companies in the region are starting to shift toward nearby sourcing partners.

Singapore-based firms, which remain among the most confident in the region, are seeking new raw-material sources to diversify risk.

Melvin Tan, vice-president of the Singapore Manufacturing Federation, said many manufacturers were turning to the newly established Johor-Singapore Special Economic Zone and nearby Indonesian factories as alternative bases for sourcing materials and supporting production.

The shift reflects a broader reassessment of supply chains, as companies try to reduce exposure to distant suppliers and volatile freight routes.

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Analysts warn that conditions could worsen unless raw-material supplies improve quickly.

Malaysia's CIMB Investment Bank Berhad said a central bank survey showed that factories had, on average, only three to four months of raw-material inventory remaining. This suggests shortages could become more severe from the end of the second quarter of 2026 onward.

Rosli from the AmBank said the current situation had become a crisis that headline GDP figures may not capture immediately because the damage is unfolding gradually.

"The transmission of impact will spread quietly from one domino to another. It works like a fire that burns slowly," he said.