The International Monetary Fund (IMF) said the Association of Southeast Asian Nations (ASEAN) continues to be an economic winner from rising geopolitical tensions between China and the United States, although the risk of fragmentation remains.
The U.N. agency said the region has long benefited from decades of globalization, with strong trade links with China and the United States, the world’s two largest economies.
Despite worsening tensions between China and the United States in recent years, ASEAN has adapted and continues to integrate into the global economy, The International Monetary Fund said in its latest Asia-Pacific outlook report, released Friday.
“Despite geopolitical tensions, ASEAN continues to strengthen trade and investment ties with China and the United States,” the report said.
ASEAN economies have increased their market share in imports from both China and the United States since 2018, with the superpower absorbing a greater share of the region’s added value, IMF data shows.
Foreign direct investment in ASEAN from both countries has also increased.
“The region is even able to take advantage of trade diversion opportunities caused by US-China trade tensions,” the report added.
Former U.S. President Donald Trump triggered a trade war with China by imposing a series of tariffs on thousands of Chinese imports in 2018 and 2019, prompting retaliation from Beijing. The Biden administration has kept most of the tariffs in place and even imposed additional tariffs in May.
The International Monetary Fund said that empirical analysis shows that exports of products targeted by China or the United States tariffs from some ASEAN economies have grown faster than other exports.
The report added that ASEAN’s exports of these tariffed goods to countries other than China and the United States have increased, indicating that ASEAN not only benefits from trade diversion but also achieves economies of scale.
Trade among members of the political and economic alliance also increased, the report said.
Overall, the IMF said these trends help ASEAN increase its share of foreign direct investment, world exports and global value added.
However, the financial institution pointed out that the gains from Sino-US tariffs have not translated into strong growth in overall exports from all ASEAN member countries.
Since 2018, some member countries, such as Vietnam, have experienced strong export growth relative to the global average, while others, such as Thailand, have experienced slower export growth, or countries such as the Philippines and Singapore have experienced stagnant export growth.
CNBC has previously reported that Vietnam, along with other Southeast Asian countries such as Malaysia and Indonesia, has become one of the top destinations for companies to diversify their supply chains away from China as geopolitical risks intensify.
Still, the IMF warned that intensifying geopolitical pressures could harm the region in the future.
For example, global economic fragmentation may reduce activity among ASEAN’s major trading partners such as the United States and China, thereby reducing external demand for goods in a region that relies heavily on exports.
The International Monetary Fund’s outlook on Friday raised the outlook for growth in 2024 and 2025 for the entire Asia-Pacific region by 0.1% from its last forecast in April.
However, despite rising prices, it also warned of additional risks to economic growth, reflecting “increased geopolitical tensions, uncertainty about the strength of global demand and the potential for financial volatility”.
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