ASEAN Navigates Geoeconomic Tensions with Diversification and Strategic Corridors

Southeast Asian nations are increasingly focused on economic security amid fluctuating US tariff policies and broader geoeconomic challenges. The establishment of the ASEAN Geoeconomic Task Force (AGTF) in May 2025 signaled a growing concern among regional governments regarding collective economic resilience [1]. Rather than aligning with traditional geopolitical strategies, ASEAN is prioritizing an economics-first approach.

A Shift in Strategic Thinking

Unlike conventional geopolitical thinking that views economic policy as a tool of security alignments, Southeast Asia emphasizes economic growth as fundamental to regime security. International security, is primarily important for protecting economic interests. This differs from prioritizing a “balance of power” in security whereas treating economics as secondary.

Diversification and ‘Corridor’ Development

ASEAN’s response to US-China rivalry and US tariffs doesn’t indicate alignment with either major power. Instead, the region is intensifying two long-standing features of its political economy: diversification and the development of strategic ‘corridors’.

Southeast Asian states continue to deepen economic cooperation with China while simultaneously seeking reduced tariffs, increased market access and US strategic investment. This dual approach, though complicated by US disruptions, is driven by a desire to avoid over-reliance on any single great power.

Indonesia’s Approach to Critical Minerals

Indonesia, for example, is navigating US tariffs while prioritizing the development of its critical minerals sector, particularly nickel. Jakarta aims to reduce Chinese dominance in this sector by engaging with the United States and utilizing its sovereign wealth fund, Danantara, alongside the newly formed Minerals Industry Agency [4].

Supply Chain Realignment

Geoeconomic challenges are reinforcing Southeast Asia’s role as a crucial link connecting adjacent economic regions. Since 2024, global supply chains have been diversifying away from China, with Southeast Asia emerging as a key destination for relocation and expansion.

The evolution of supply chain strategies can be categorized into three phases:

• China+1: Following the COVID-19 pandemic, firms maintained operations in China while expanding capacity in Southeast Asia for global markets.
• Friendshoring (2022-2023): Multinational firms relocated low-value assembly from China to Southeast Asia, while upstream inputs and technologies largely remained China-linked.
• Strategic Node Construction (2024-Present): The creation of new production nodes in ‘friendly’ economies, involving higher-value stages of the supply chain through state-directed engineering and bilateral agreements.

Emerging Strategic Corridors

The October 2025 Malaysia–US Critical Minerals Supply Chains Memorandum of Understanding exemplifies this trend. Malaysia pledged to not restrict critical mineral exports to the US in exchange for investment in higher-value processing and cell manufacturing capacity [4]. Parallel agreements between the US and Australia and Japan suggest the emergence of a new Australia–Malaysia–Japan–US critical minerals corridor.

Navigating US-China Tech Competition

Southeast Asia is also at the intersection of advanced semiconductor and artificial intelligence (AI) hardware supply chains. US export controls on advanced AI chips to China, implemented from 2023, have led Chinese firms to shift parts of model training and chip procurement to Southeast Asia – particularly Singapore, Malaysia, Thailand, and Indonesia – utilizing regional intermediaries and data centers [4].

This presents both opportunities and challenges. The region benefits from this relocation, but must also balance Chinese supply chain needs with US regulatory demands. Effective regional enforcement of export controls, such as those in Singapore and Malaysia, is crucial.

The Role of ASEAN

This positions Southeast Asia as an active gatekeeper in the global AI hardware system, potentially facing conditional access to US chips based on export control enforcement. Simultaneously, China is re-prioritizing Southeast Asia as an offshore corridor, effectively extending its AI ecosystem.

Geo-economics in Southeast Asia is rapidly evolving, offering opportunities for diversification. Still, the costs of mismanaging strategic exposure to either the United States or China have increased significantly.