Geopolitics Reshapes Trade, Supply Chains, Boosting ASEAN FDI
Experts at an IMF-World Bank seminar noted growing efforts to mitigate transit vulnerabilities and geopolitical shocks, particularly impacting Southeast Asia's industrial production and foreign direct investment.
Diversification Expands Beyond Products
Global trade diversification is now extending beyond product ranges to encompass trading partners and entire supply chains, driven by the need to counter geopolitical disruptions and potential transit bottlenecks. This shift was a key theme at a seminar held during the 2026 IMF-World Bank Group Annual Meetings.
Muhammad Sulaiman Al Jasser, President of the Islamic Development Bank, noted that an economy’s ability to withstand global trade shocks relies more heavily on its market competitiveness than on the variety of its exports.
He cited Saudi Arabia's strategic foresight in building its east-west pipeline to reduce transit vulnerabilities as an example, stressing the importance of pre-established logistics and supporting infrastructure.
Asia's Supply Chain Evolution
Professor Tang Jiawei highlighted the evolution of this strategy. Before 2025, the primary trade tension between the US and China led to the 'China+1' approach, where companies diversified investments outside China to maintain lower tariffs on US-bound exports. However, US tariffs imposed on numerous countries after 2025 reduced the effectiveness of this strategy.
Professor Tang observed that countries are now localising production and expanding into domestic markets, rather than solely implementing China+1.
Southeast Asia has significantly benefited from this supply chain restructuring, with industrial production driving regional economic development, supported by alliances like ASEAN and the 15-economy Regional Comprehensive Economic Partnership (RCEP).
New Headwinds and Infrastructure Needs
Global trade faces increasing challenges, according to Robert Staiger, Chief Economist at the World Trade Organization (WTO). He noted that quantitative trade restrictions, often imposed for national security reasons and reported to the WTO, have tripled over the past decade. The rise of unilateral industrial policies and state subsidies continues to undermine fair global trade.
Odile Renaud-Basso, President of the European Bank for Reconstruction and Development, suggested that nations must consider 'soft connectivity' in addition to physical infrastructure. She emphasised that digital integration, regulatory alignment, and streamlined customs procedures are crucial alongside roads, ports, and railways.
For Asian businesses and investors, these trends signal a continued re-evaluation of manufacturing footprints and logistics networks. The emphasis on regional integration through ASEAN and RCEP fosters increased intra-Asian trade and investment flows.
While some Asian economies have successfully attracted significant foreign direct investment (FDI) from both the US and China in recent years, Professor Tang identified persistent challenges. These include insufficient infrastructure development, policy uncertainty, and a lack of transparency, which together can deter further foreign investment. Addressing these issues will be key for Asian nations looking to capitalise on the ongoing global supply chain shifts.
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