By Evelyn S Devadason
ASEAN stands at a pivotal moment in its economic development. For decades, the region’s growth was underpinned by trade openness, export-oriented industrialisation and deep integration into global value chains (GVCs). That model is now being tested by a fundamental shift in the global trading environment. Geopolitical rivalry, economic and energy security concerns, technological competition, including artificial intelligence (AI) and increasingly stringent climate- and labour-related regulations are reshaping the foundations of international commerce.
These developments do not present isolated risks; rather, they reinforce one another. Supply chain disruptions are increasingly intertwined with geopolitical tensions, technological fragmentation and sustainability requirements, creating a more complex and uncertain operating environment.
The challenge for ASEAN is therefore no longer simply to remain open to trade, but to remain resilient, strategically relevant and economically competitive in an increasingly fragmented global economy, where control over “chokepoints” is becoming as important as access to markets. At the same time, the sources of competitive advantage are shifting. While market access remains important, long-term competitiveness will increasingly depend on resilience, technological capabilities, regulatory alignment and control over strategic assets and critical technologies.
This changing global landscape raises three important questions: What are the principal risks facing ASEAN? Where should the region position itself for the future? And what lessons should guide ASEAN’s next phase of integration and competitiveness?
Qualifying Supply Chain Vulnerability
Supply chain resilience has emerged as one of ASEAN’s defining strategic challenges. The World Economic Forum’s Executive Opinion Survey identifies two risks that rank higher for Southeast Asia than the global average: Adverse outcomes from AI and supply chain disruptions. ASEAN’s vulnerability stems not merely from its high degree of openness, but from the structure of its integration into global production networks. More than 60% of the region’s exports are linked to GVCs, while its average GVC participation rate ranges between 25% and 27%.
However, (direct and indirect) exposure should not be equated with vulnerability. Vulnerability depends on the capacity to absorb and recover from shocks. This distinction is evident across ASEAN. The 2026 Global Trade Resilience Index ranks Singapore, the only ASEAN Member State (AMS) in the top 20, as the world’s seventh most resilient economy despite its high exposure to international trade. Strong institutions, diversified capabilities and operational efficiency enhance its recovery capacity. In contrast, economies with similar high exposure (as per the Southeast Asia Trade Exposure Index) but weaker institutional capabilities, such as Vietnam, remain significantly more vulnerable to external disruptions.
Nor does geographical diversification of suppliers and customers automatically guarantee resilience. Expanding supplier networks often increases complexity, coordination costs and operational risks. ASEAN’s dependence on upstream Chinese production networks for strategic inputs limits the scope for meaningful diversification and reinforces concentration risks. As strategic chokepoints become increasingly contested, competitive advantage depends not only on access to suppliers but also on secure access to critical nodes in GVCs, including semiconductors, digital infrastructure, critical minerals, maritime shipping lanes, energy corridors and undersea cables.
Building resilience therefore requires more than supplier diversification. It requires stronger regional production capabilities, greater regulatory interoperability, higher intra-ASEAN investment and reduced concentration in critical upstream industries.
Ironically, ASEAN’s own industrial strategies may be undermining this objective. Rather than deepening regional production networks, member states are increasingly competing to attract extra-regional investment. Yet higher foreign direct investment (FDI) inflows alone are unlikely to strengthen ASEAN’s long-term competitiveness unless they translate into stronger domestic capability building, technology diffusion and greater regional value creation. At the same time, the digitalisation of supply chains, ethical sourcing requirements and increasingly sophisticated cross-border logistics are raising the governance demands on firms operating within both regional value chains and GVCs.
Competing Partnerships & Regional Fragmentation
The second challenge is the gradual fragmentation of regional economic governance. ASEAN has traditionally positioned itself as the hub of regional cooperation, yet the emergence of issue-based “minilateral” partnerships suggests that economic security is increasingly reshaping regional cooperation. Digital trade agreements, critical minerals partnerships, semiconductor alliances and clean energy initiatives are creating new centres of cooperation that complement, but increasingly bypass, ASEAN-led mechanisms.
This trend raises a fundamental question about ASEAN centrality. As competing economic and security partnerships between AMS and extra-regional partners proliferate, ASEAN risks evolving into a venue for dialogue rather than the principal platform for shaping regional rules and standards. The often-cited observation that ASEAN “thinks regionally but acts bilaterally” reflects this growing tension between collective aspirations and national strategic interests.
Regional fragmentation is further compounded by internal geopolitical challenges. The South China Sea disputes continue to impede progress towards a rules-based maritime order, while Myanmar’s prolonged political crisis has tested ASEAN’s consensus-based approach and diverted attention from broader economic priorities. More recently, the Thailand-Cambodia border tensions have highlighted the persistence of intra-regional security challenges.
Together, these developments weaken ASEAN’s cohesion precisely when greater unity is required to respond to an increasingly fragmented external environment.
Shifting Pressures for Businesses
The changing trade landscape is also transforming the operating environment for businesses. Complex non-tariff measures and fragmented regulatory regimes continue to increase compliance costs and impede market access. At the same time, firms are expected to build resilient, digitally connected and sustainable supply chains that satisfy expanding environmental, labour and due diligence requirements.
Meeting these obligations requires far greater transparency across supply networks. Increasingly, firms must disclose supplier information and trace ownership structures to comply with due diligence regulations. This is particularly challenging where corporate ownership involves multiple layers of holding companies, as is often the case in large Chinese technology and manufacturing firms.
Digital technologies and AI offer significant opportunities to strengthen supply chain governance through end-to-end visibility, predictive risk management and automated compliance. However, technology alone is insufficient. Simply layering AI onto existing workflows is unlikely to deliver transformational gains unless accompanied by organisational redesign, trusted data ecosystems and effective governance frameworks. Competitive advantage is therefore shifting beyond supply chain resilience towards supply chain intelligence, the ability to anticipate, monitor and respond to disruptions in real time.
The Next Frontier
Against this backdrop, ASEAN’s next phase of competitiveness will depend less on expanding market access than on accelerating its digital and green transitions.
Despite notable progress, ASEAN’s first wave of digitalisation remains incomplete. Based on the UN Global Survey on Digital and Sustainable Trade Facilitation, the region has achieved implementation rates of approximately 82% for paperless trade and 66% for cross-border paperless trade, yet significant gaps remain. Small and medium enterprises (SMEs) continue to face barriers to digital adoption. Even Singapore reports AI adoption rates among SMEs of only around 15%.
The more pressing challenge, however, lies beyond digitalisation itself. As the next stage of digital transformation, AI will increasingly determine ASEAN’s future competitiveness. ASEAN has made considerable progress in generating and managing data, yet it continues to lag in translating these capabilities into AI-enabled productivity gains. Hosting data centres alone will not secure digital competitiveness. ASEAN must move up the AI value chain, from providing digital infrastructure to developing full-stack AI capabilities across compute infrastructure, data governance, cloud platforms, AI regulation and digital sovereignty.
Without strengthening these capabilities, ASEAN risks becoming increasingly dependent on technology ecosystems dominated by either the US or China, creating a new form of strategic dependence.
This transition also elevates the importance of regional digital governance. The implementation of the ASEAN Digital Economy Framework Agreement will therefore be judged not simply by its conclusion but by its execution. Achieving meaningful digital integration will require greater convergence in cross-border data governance, AI regulation, cybersecurity and digital standards, supported by a robust framework for measuring digital progress across member states.
The same strategic imperative extends to ASEAN’s green transition. Energy security can no longer be viewed solely as an environmental concern; it has become a central pillar of industrial competitiveness and economic security. Scaling up renewable energy deployment, diversifying ASEAN’s energy mix and improving energy efficiency will be essential as export markets impose increasingly stringent carbon-related requirements.
The ASEAN Power Grid represents an important step towards regional energy integration by facilitating cross-border electricity trade and enabling more efficient use of renewable resources. However, its success will depend on substantial investments in transmission infrastructure, grid modernisation, energy storage, regulatory reform and innovative risk-sharing mechanisms. Longer-term proposals, including an ASEAN strategic petroleum reserve, could further strengthen regional resilience, although concerns over governance, burden-sharing and trust will need to be addressed.
Ultimately, the success of ASEAN’s green transition will depend not only on investment in energy infrastructure, but also on deeper regional coordination, regulatory harmonisation and shared commitments to energy security.
Lessons for ASEAN
Several broader lessons emerge from recent global developments. First, global trade is moving away from a predictable, rules-based system towards one increasingly shaped by geopolitics, economic security and strategic competition, where resilience often takes precedence over efficiency. Second, economic security now depends not only on market access but also on secure access to energy, critical inputs, strategic infrastructure and trusted digital networks.
Third, competitive advantage increasingly depends not simply on ownership, but on control of the industrial middle — processing and refining of critical minerals that underpin GVCs. The same logic applies to AI, where competitive advantage will increasingly depend on control over compute infrastructure, data, cloud platforms and AI governance, rather than simply adopting AI applications.
These structural shifts require ASEAN to rethink its approach to regional integration. Market diversification alone is no longer sufficient. As strategic chokepoints increasingly shape global trade, resilience depends on diversifying suppliers, logistics corridors, trusted partnerships and critical upstream inputs, while reducing dependence on vulnerable nodes, including critical minerals, industrial chemicals (such as naphtha, helium and sulphur), digital infrastructure, maritime shipping lanes, energy corridors and undersea cables.
Beyond physical resilience, regulatory convergence has become equally important. Future integration will rely less on tariff liberalisation than on harmonising digital trade rules, AI governance, cross-border data frameworks, cybersecurity, sustainability standards and supply chain due diligence. In an increasingly digital economy, regulatory competitiveness is becoming as important as production competitiveness.
Finally, ASEAN should not equate investment attraction with capability development. FDI remains important, but it will strengthen long-term competitiveness only if it translates into stronger domestic technological capabilities, greater knowledge diffusion and higher value-added activities within regional production networks. The same principle applies to ASEAN’s digital ambitions. Attracting large-scale investments in data centres is valuable, but hosting digital infrastructure alone will not secure technological leadership. Without developing capabilities in AI, cloud services, data governance and digital networks, ASEAN risks remaining a consumer of digital technologies rather than becoming an active participant in their ownership, routing, maintenance and governance. In other words, the challenge is no longer one of quantity versus quality of FDI, but of moving from digital consumption to digital capability and control.
Ultimately, ASEAN’s crossroads is not simply about responding to external shocks; it is about redefining its development model. Preserving ASEAN centrality will require deeper regional integration, stronger institutional coordination and a willingness to shape, rather than merely adapt to, the evolving rules of global trade. Where resilience has become the new currency of competitiveness, ASEAN’s future will depend on how effectively it transforms vulnerability into resilience, openness into capability, and integration into strategic autonomy.
The author is a Professor at the Faculty of Business and Economics, University Malaya, and Vice-President of the Malaysian Economic Association
