First, there is no singular Asia. Asian economies span a broad range of geopolitical positions. We analyzed the geopolitical position of over 150 economies based upon their UN voting patterns, and we found out that the advanced Asian economies, such as Korea and Japan, are positioned on one end of the spectrum, closer to the United States and Europe. In contrast, China is positioned on the opposite end. Meanwhile, many ASEAN economies and India occupy a more central position.
When we calculated the geopolitical distance of trade, we also observed varied patterns. Major economies like Korea and Japan and China saw declines in geopolitical distance by about 4 to 7 percent. On the other hand, ASEAN economies experienced minimal changes, suggesting that they continue to engage with diverse global partners, reflecting their mid-aligned positions.
Second, despite the diverse geopolitical spectrum, Asia remains deeply, deeply interconnected. Intraregional trade in the region accounts for about 60 percent of the total trade in Asia, making it the second-highest region after the EU. Moreover, around two-thirds of the trade in Asia consists of intermediate goods, which is about 15 percentage points higher than in other regions.
Third, a reconfiguration of trade networks is under way. For example, China’s share of US electronics imports has declined by 17 percentage points over the past five years, while US imports from other Asian economies have increased by about ten percentage points. Simultaneously, these Asian economies have increased their imports from China, particularly in upstream components within the value chain.
We cannot speculate about the future. It will depend on how Asian economies balance their security and economic agenda. One interesting indicator to watch, though, is capital movement, which could be a canary in the coal mine. Announcement data about greenfield foreign direct investment (FDI) suggests that new manufacturing hot spots may emerge across Asia. For example, greenfield FDI into ASEAN increased by about 110 percent and into India by about 70 percent between pre- and post-COVID annual averages.
More than half of this investment went to so-called strategic sectors such as renewables, semiconductors, electronics, and critical minerals. This is a positive sign, but increased FDI influence alone does not guarantee these economies will become manufacturing powerhouses of the world. The host country will also need to mobilize domestic investment to sustain momentum and improve infrastructure, human capital, and institutional enablers.