This article was first published in Nikkei Asia on September 17, 2025.
From supply-chain resilience to AI, region’s economies must balance openness with flexibility
Global value chains (GVCs) are at an inflection point. For decades, they have been central to Asia’s rapid economic ascent. Today, however, these production networks are being reshaped by geopolitical dynamics, pandemic aftershocks and the emergence of disruptive technologies.
Unilateral US tariff measures and trade tensions between major economies, including the US-China trade conflict and European Union-China frictions, have put enormous pressure on cross-border production networks. Just as the global economy began recovering from the COVID-19 pandemic, concerns over geo-economic fragmentation are clouding the outlook for global trade and growth, particularly for developing and emerging economies.
This moment raises a pressing question: Can Asia’s GVC-driven growth model adapt and thrive in this new era of rising geopolitical tensions, evolving trade and technology dynamics and deepening global uncertainty?
The answer is a qualified yes — if the region embraces transformative shifts already underway.
As US-China tensions deepen, more companies are re-calibrating their production footprints. Tariffs, sanctions, and the imperative for risk diversification are prompting firms to relocate parts of their operations outside China. At the same time, other economies in Asia — particularly in ASEAN — are becoming increasingly attractive as alternative hubs.
This trend is not accidental. Over the past decade, ASEAN economies have invested in physical and digital infrastructure, enhanced their regulatory frameworks for “new economy” activities such as e-commerce and smart logistics, and improved workforce skills. As a result, economies like Vietnam and Indonesia are drawing significant investment in electronics, battery manufacturing and electric vehicles (EVs). Malaysia and Thailand are gaining ground in data centers, semiconductors and auto industries. The Philippines is expanding its strengths in digital services, especially business process outsourcing, while Singapore is growing its modern digitally-based services.
The region is not just moving up the value chain — it is laying the foundation for next-generation GVCs.
The pandemic and recent tariff measures have underscored the vulnerabilities of GVCs. Disruptions to logistics and supply chains during crises have pushed governments and businesses to rethink “just in time” models — placing emphasis on diversification, resilience and national security, and accepting a degree of redundancy as a necessary trade-off.
While full self-sufficiency is neither practical nor feasible in today’s interconnected global economy, strategic diversification of suppliers, routes, and inventory has now become essential. Efforts to re-industrialize behind protectionist walls are costly and likely to fail because these go against the core principles of open markets and competitive specialization.
For Asia, the path forward lies in balancing efficiency with flexibility. Economies that adapt swiftly — by building resilience and diversified networks — will be better positioned to withstand future shocks and maintain competitiveness.
In this rapidly evolving tech landscape, digital readiness is a key determinant of economic agility. Asian economies must accelerate investment in digital infrastructure, AI adoption, and innovation ecosystems. The ability to harness AI-driven transformation and scale up commercialization will define their future competitiveness.
For GVCs, technology can help offset the adverse effects of geo-economic fragmentation by enhancing resilience. Many ASEAN+3 economies are already moving up the manufacturing value chain, using technology to boost competitiveness and reduce vulnerability to external demand shocks. Those that quickly embrace generative AI, automation and robotics will be better placed to raise productivity and efficiency amid rising costs, tight labor markets and aging populations.
Blockchain can further improve the efficiency of GVCs by tracing product origins and streamlining compliance with rules of origin. In supply chain finance, fintech-bank partnerships are easing suppliers’ cash constraints without disrupting buyers’ liquidity.
However, many of these technological advances will also displace labor. Policymakers must prepare for industrial transformation by supporting workforce reskilling, encouraging cross-sector mobility and enhancing social protection. The future of work will be more dynamic and nonlinear — and policy must keep pace.
Today’s GVC reconfiguration echoes the shifts seen after the Plaza Accord in the late 1980s, when Japanese companies relocated parts of their auto and electronic supply chains to ASEAN to lower costs in response to the sharp appreciation of the yen. Similar patterns are unfolding again as firms seek cost efficiency and market access by relocating their production from high-tariffed countries such as China, to lower-tariffed ones in ASEAN and elsewhere abroad to remain competitive.
But there are important differences. Asia is no longer just “Factory Asia.” It is also “Shopper Asia.” A fast-growing middle class is powering demand, making the region both a producer and consumer in global trade.
Meanwhile, Asia is deepening its trade and investment links — not just within the region but globally. Agreements such as the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), along with growing ties to South Asia, the Middle East, Africa and Latin America, are expanding the region’s connectivity. From high-end manufacturing in semiconductors and EVs to smart devices, Asia is stepping into a broader role in global value creation.
To stay ahead, Asia must:
- Strengthen regional integration while remaining globally open. Build robust production networks and supply chains within the region and stimulate intra-regional demand by eliminating cross-border restrictions on movements of goods and services.
- Invest in infrastructure and human capital. Prioritize future-ready infrastructure for high-tech manufacturing and services production and delivery; and equip new workforce entrants with adaptable, cross-sectoral skills to thrive in evolving labor markets.
- Foster industry clusters and specialization. Encourage strategic sectoral hubs — for example EVs in Indonesia and Thailand, semiconductors in Malaysia and Vietnam, digital services in the Philippines and advanced business services in Singapore.
- Balance resilience and openness. Build buffers and diversify risks while resisting protectionist impulses that could fragment trade and stifle innovation.
The world is entering a new phase of globalization — more fragmented, but also more digital, high-tech and dynamic. For Asia, this presents both huge growth potential and a massive downside risk to the development outlook, especially for emerging economies that do not move fast enough. The region’s future depends on its ability to stay open, innovate rapidly and adapt proactively to global shifts in geopolitics and protectionist policies.
GVCs are not disappearing — they are evolving and reconfiguring. And if Asia moves decisively, it can continue to drive and define the next frontier.