Geo-economics, Southeast Asia style

Geo-economics officially entered ASEAN’s lexicon when the ASEAN Geoeconomic Task Force was established in May 2025 in response to renewed US tariff pressure. Despite its limited advisory mandate, the initiative signals Southeast Asian governments’ concern about collective economic security given mercurial US tariffs and policy behaviour.

Discussions on geo-economics often adopt the simplistic geopolitics analogy, assuming that economic instruments are used to pursue political objectives or that economic policy must follow security alignments. This is not the case in Southeast Asia, where governments have generally emphasised ‘pick-and-choose’ economics-first strategies, as opposed to ‘pick-one-side’ security alignments.

For Southeast Asia, the economic realm is of fundamental strategic importance because economic growth is closely tied to regime security. The international security realm derives its importance from the need to protect these economic imperatives. This is considerably different from the idea that sustaining a ‘balance of power’ in international security is vital while economics is just a means to geopolitical ends.

So far, Southeast Asian responses to US–China rivalry and Trump tariff pressure do not indicate realignment towards either great power. Instead, two long-standing features of the region’s political economy are intensifying — diversification and ‘corridor’ development.

The diversification redux is evident in the way Southeast Asian states continue to deepen economic cooperation with China while simultaneously negotiating reductions in tariffs, market access and US strategic investment. Persisting with these traditional two-way economic partnerships with the two most important great powers is more complicated now given US disruptions, but the fear of over-exposure to a single great power compels such diversification.

Indonesia illustrates this logic. Like others, Jakarta has been reeling from the Trump tariffs. But it also has other major economic priorities, including energising its valuable critical minerals sector, especially nickel. Here, Jakarta’s priority remains reducing Chinese capital and processing dominance. To do so, it is engaging the United States as part of a broader investment diversification effort, using its sovereign wealth fund Danantara as a state investment vehicle and strengthening domestic control through the newly formed Minerals Industry Agency.

Geo-economic challenges are also reinforcing Southeast Asia’s penchant to benefit from being a ‘corridor’ connecting adjacent economic regions. One significant geo-economic shift since 2024 is the continued relocation and diversification of global supply chains away from China towards multiple Southeast Asian locations, as key ASEAN economies try to embed themselves as higher-value or more strategic nodes in these new spatial configurations.

In the ‘China+1’ phase, which accelerated following the COVID-19 pandemic, firms retained operations in China while expanding capacity elsewhere for global markets. Southeast Asia emerged as the top ‘+1’ destination, producing deeper economic integration within the region and with China across specialised clusters.

The ‘friendshoring’ phase followed in 2022–23. Multinational firms relocated or duplicated low-value assembly from China to Southeast Asia while upstream inputs, midstream materials and proprietary technologies remained largely China-linked even as assembly diversified.

Since 2024, friendshoring moved beyond relocation towards the construction of brand-new production nodes in ‘friendly’ economies, involving more strategic or higher-value stages of the supply chain, often through state-directed supply-chain engineering and bilateral agreements. This could result in a parallel, politically insulated capacity in allied/partnered states — a de-risking architecture acting as an alternative to the China-centred supply chains.

In the October 2025 Malaysia–US Critical Minerals Supply Chains Memorandum of Understanding and Reciprocal Trade Agreement, Malaysia pledged not to restrict critical mineral exports to the United States and secured investment into higher-value processing and cell manufacturing capacity. Alongside parallel US agreements with Australia and Japan, a new Australia–Malaysia–Japan–US critical minerals corridor spanning battery anode materials and rare earth processing appears to be emerging.

Southeast Asia also sits at the crossroads of advanced semiconductor and artificial intelligence (AI) hardware supply chains. From 2023, US export controls were tightened for advanced AI chips to China. In response, Chinese firms shifted parts of model training and chip procurement to Southeast Asia — particularly Singapore, Malaysia, Thailand and increasingly Indonesia — using regional intermediaries, data centres and re-export channels to maintain access.

This has been lucrative for the region, but it also poses new challenges for how to balance between Chinese supply chain relocation and US regulatory demands that run through Southeast Asia. The effectiveness of Washington’s restrictions depends on regional enforcement, such as Singapore’s corporate structures and Malaysia’s permit system.

This exposes the region both to the risks of secondary controls and to the opportunities of becoming a trusted friendshoring destination if diversion is credibly policed. Geo-economically, this upgrades Southeast Asia to being an active gatekeeper in the global AI hardware system.

Washington might come to treat Southeast Asia as a conditional corridor whose access to US chips depends on its export control enforcement performance. At the same time, China is re-prioritising Southeast Asia as an offshore corridor — making the region a functional extension of China’s AI ecosystem.

Geo-economics Southeast Asian style is fast-moving in this climate of opportunities for diversification in a region that has constantly leveraged its position as a strategic crossroads. Yet, as strategic supply chains become simultaneously more integrated and more compartmentalised, the costs of mismanaging strategic exposure, either to the United States or to China, have increased exponentially.

This article is originally featured on the East Asia Forum. 

Article by Evelyn Goh, Director of the Southeast Asia Institute at The Australian National University, and Jascha Ramba, a Master's student at The Australian National University.