BGA Advisor Dr. Prashanth Parameswaran wrote an update to clients on the geoeconomic challenges facing ASEAN and the Indo Pacific.

Context

  • Pressure is growing within the Association of Southeast Asian Nations (ASEAN) to respond to rising geoeconomic challenges in a shifting global order. Officials have indicated that addressing this pressure requires urgent steps in several areas including the trade, digital and energy domains.  Intended policy changes in some sectors could have important implications for companies and other stakeholders. These will occur amid shifting geoeconomic engagement by major powers in Southeast Asia as part of evolving diversification strategies of their own. Geopolitical flashpoint management also remains a major risk on the horizon, including on the South China Sea and in proliferating scam centers. 
  • The ASEAN secretary-general noted after the Munich Security Conference in February that the grouping needed to build resilience beyond “short-term crisis management,” a veiled reference to adjusting to the second administration of U.S. President Donald Trump. The grouping’s first-ever ASEAN Geoeconomics Report publicized by the ASEAN Secretariat in January after limited release weeks earlier noted bluntly that navigating an environment including tariff wars “requires a decisive shift from business-as-usual.

Significance

  • The year 2026 will be a critical test for some sectoral priorities. In the digital realm, ASEAN is expected to move ahead with the delayed Digital Economy Framework Agreement (DEFA) – the world’s first major regionwide digital pact of its kind. Officials familiar with the talks had worried about rising “bilateral-multilateral gaps” as some Southeast Asian states entered digital understandings with the United States as part of their trade deals. On energy, scrutiny will focus on the extent to which increased momentum on the long-mulled ASEAN Power Grid (APG) can be sustained. While the APG has been given a shot in the arm with a few billion dollars in financing, the resource gap is large with ASEAN’s own earlier estimate putting it around $764 billion to achieve by 2045.
  • Looking ahead, intraregional geoeconomic checkpoints will be vectors to watch into 2027. On trade, ASEAN is expected to undertake a 2027 review of the Regional Comprehensive Economic Partnership (RCEP), the world’s largest trade bloc which includes Southeast Asian states along with Australia, China, Japan, Korea and New Zealand. Though the pact has heft, accession for new members has been slow to progress despite interest from economies including Bangladesh, Chile, Hong Kong and Sri Lanka. In the maritime domain, ASEAN has indicated it will move forward with the second iteration of a triennial ASEAN Maritime Outlook, introduced by Indonesia during its 2023 ASEAN chairmanship as a critical exercise to streamline cooperation.

Implications

  • Geoeconomic efforts by partner countries will be another front to monitor. On the trade deal front, apart from ASEAN’s ongoing efforts to update existing free trade agreements with countries like South Korea, Canadian officials have insisted a new, delayed ASEAN-wide deal will be concluded as early as the end of 2026. Prime Minister Mark Carney views Southeast Asia as part of its efforts to double non-U.S. exports in the next decade amid the order “rupture” he has frequently referenced. Japan has utilized a newly designated center within the Economic Research Institute for ASEAN and East Asia (ERIA) in Jakarta to help overcome challenges in socializing its Asia Zero Emissions Community. China has constructed a new ASEAN-China artificial intelligence application center and is pushing for special ministerial mechanisms to try to outpace the United States in multilateral digital cooperation.  
  • Geopolitical flashpoint management remains a big risk amid geoeconomic priority advancement. The chief concern remains the South China Sea. ASEAN and China have agreed to hold monthly technical working group meetings under the Philippines’ ASEAN chairmanship this year to reach a previously agreed end of 2026 deadline for a binding code of conduct. But concerns remain about the code being watered down in reach or undermined by actions on the water by China amid the shifting dynamics of U.S.-China summitry. Intraregional questions like post-election Myanmar and the Cambodia-Thailand border row are also increasingly intersecting with proliferating scam centers that detract from the region’s growth story. Thailand’s Foreign Minister Sihasak Phuangketkeow candidly told an audience in Davos in January that Southeast Asia risks a situation analogous to the drug cartels in Latin America “if we don’t act now,” with groups leveraging technologies including artificial intelligence with more speed and sophistication and blurring the line between criminality and state authority.  

We will continue to keep you updated on developments in the Indo Pacific as they occur. If you have any comments or questions, please contact BGA Advisor Dr. Prashanth Parameswaranwrote at prashanth@bowergroupasia.com.

Best regards,

BGA Indo Pacific Team

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Advisor

Prashanth is a recognized scholar, commentator and expert on geopolitical and geoeconomic developments across Asia. He has spent nearly two decades analyzing the region, with a focus on Asia’s politics and security, U.S. foreign policy and Southeast Asia.   Prashanth is concurrently a fellow at the Wilson Center, a senior columnist at The Diplomat magazine and an instructor for institutions including the U.S. State Department. He is the founder of the twice-weekly ASEAN Wonk newsletter, which offers research insights and analysis on the geopolitics and geoeconomics of Southeast Asia and the Indo-Pacific region.  Prashanth has held various roles across think ... Read More