ASEAN’s Geo-economic Dilemma
The Russia–Ukraine war has shown that geopolitical conflicts reach far beyond the battlefield, affecting energy prices, trade, inflation, financing costs, and fiscal resilience. These pressures featured prominently at the IMF and World Bank Annual Meetings in Bangkok in October 2026, where geopolitical tensions, energy shocks, high public debt, and economic fragmentation were key concerns.
For the Association of Southeast Asian Nations (ASEAN), the strategic question is whether Southeast Asia will become a magnet for global investment as companies diversify production, or a battleground for competition among the United States, China, Japan, and other major powers. The challenge is to convert investment into industrial development, productivity, stronger supply chains, and resilience. Without a shared strategy, openness may create growth alongside new vulnerabilities.
From Globalisation to Geo-economics
Globalisation was long understood through efficiency: firms sought lower costs and production networks crossed borders. The war in Ukraine exposed the model’s fragility. Energy dependence, sanctions, export controls, and disrupted logistics showed how economic links can become political pressure.
Edward Luttwak’s concept of geo-economics helps explain this shift. Trade, investment, technology, finance, and market access are not merely commercial matters; they can also be instruments of strategic influence (Luttwak). Governments now seek to protect critical industries, secure supplies, and influence other countries’ choices.
This creates opportunity and risk. Companies diversifying production may invest more in Southeast Asia, but major-power competition can pressure ASEAN members to align with particular technologies or standards. The region could gain factories while remaining dependent on decisions made elsewhere.
Investment Magnet, but for What Kind of Growth?
ASEAN attracts investment through its large market, workforce, manufacturing clusters, and position along major trade routes. Its roles in electronics, automotive production, digital services, and the green transition matter as firms reconsider where to manufacture and source components.The ASEAN Investment Report 2025 recorded foreign direct investment (FDI) inflows of US$226 billion in 2024, up 8 percent, even as global FDI fell 11 percent. Manufacturing investment rose by nearly 150 percent to US$44 billion. These figures underline ASEAN’s appeal.
However, rising inflows do not automatically deliver structural transformation. An economy may host new factories while relying on imported components, foreign technology, and external demand. If domestic firms remain outside supply chains, workers receive limited training, and research stays abroad, the benefits may be narrower than headline investment figures suggest.
Governments should assess investment by the capabilities it creates, encouraging local suppliers, workforce training, research, technology transfer, and more value added within the region. The goal is not to reject foreign capital, but to strengthen productive capacity.
Three Powers, One Region
The United States, China, and Japan each create opportunities for ASEAN, but their economic roles and strategic interests differ. The United States offers a major consumer market, finance, technology, and investment. Access can support exports and advanced-technology cooperation, while tariffs and export controls create uncertainty.
China is central to manufacturing networks, supplying components, machinery, and investment. Its scale makes many inputs difficult to replace, but excessive dependence can expose firms and governments to disruption and political pressure. Japan brings manufacturing relationships, infrastructure investment, supplier-development experience, and technology. Cooperation can support skills and higher-value manufacturing, provided it builds lasting local capabilities.
Regional economic ties are already substantial. According to the ASEAN Plus Three statement, trade among ASEAN, China, Japan, and South Korea reached US$1.4 trillion in 2025, up from US$1.2 trillion in 2024. FDI from these economies totalled US$44.8 billion, or 18.2 percent of ASEAN’s total FDI in 2025. ASEAN need not choose one partner over others; it must manage these relationships according to shared priorities.
From Dependence to Bargaining Power
The concept of “weaponised interdependence,” developed by Henry Farrell and Abraham Newman, describes how states can exploit central positions in global networks to exert influence. Countries controlling critical financial channels, technologies, infrastructure, or supply-chain nodes may gain leverage over those that depend on them.
ASEAN should not retreat from interdependence, which has created jobs, expanded exports, and attracted capital. It should make those ties more balanced, with alternatives when suppliers, markets, or routes fail.
Four priorities can help.
First, deepen regional integration. Compatible standards, faster customs, better logistics, and fewer non-tariff barriers would make regional sourcing easier and present ASEAN as a connected production base. Second, link investment incentives to industrial development. Policies can encourage local suppliers, workforce training, research, and technology transfer. The aim is competitive domestic firms and skilled workers, not simply more projects. Third, strengthen strategic resilience. Energy, food, semiconductors, digital infrastructure, logistics, and payment systems deserve attention. Diversified suppliers and regional capacity can reduce exposure without requiring every country to produce everything. Fourth, coordinate responses to external pressure. Divergent tariffs, incentives, technology rules, and supply-chain policies can weaken collective leverage. Shared principles would support consistent responses while respecting national interests.
Hedging Requires a Common Strategy
ASEAN has pursued hedging by maintaining ties with multiple powers rather than relying on one. This remains valuable across trade, investment, infrastructure, and technology. But national hedging has limits. If governments negotiate separately and offer competing concessions to attract capital, external powers and multinational firms may gain leverage while ASEAN’s collective bargaining position remains weak. Strategic autonomy requires more than avoiding an explicit choice between major powers; it also requires regional coordination and a clearer understanding of what investment should deliver.
This is especially important for smaller economies, whose negotiating power can be limited when they face major investors or markets individually. Acting regionally would not eliminate differences among ASEAN members, but it could give them more influence over standards, investment priorities, and the distribution of economic gains. A shared approach should keep markets open while improving production, innovation, and value retention. Assess investment by productivity, technology transfer, domestic supplier participation, quality jobs, and resilience—not simply by its volume.
Conclusion
The Russia–Ukraine war and IMF–World Bank meetings in Bangkok underline the links between geopolitics, energy, trade, and fiscal stability. ASEAN’s FDI and trade growth offer opportunities, but do not automatically confer geo-economic power. The choice is not to accept or reject foreign investment, or simply choose Washington over Beijing. ASEAN must shape economic engagement to support long-term regional development. With stronger integration, industrial capabilities, diversification, and policy coordination, ASEAN can turn competition into bargaining power and resilience. Without them, others may determine the benefits. ASEAN’s future depends on converting investment into shared economic strength.
DISCLAIMER: All views expressed are those of the writer and do not necessarily represent that of IIPA and this platform.
Author
Dr. Eko Setiobudi, SE, ME is an economist, lecturer at STIES Mitra Karya Bekasi, Indonesia, and business practitioner. His areas of interest include macroeconomics, fiscal policy, financial markets, economic development, international trade, and Indonesia’s role in the global economy. He writes on economic and geopolitical developments in Indonesia, ASEAN, the Indo-Pacific, and the global economy.