On 22 February 2024, ACI organized a webinar titled “What Supply Chain Diversification Means for ASEAN” to explore how ASEAN can navigate the great reset of trade and investment. The ACI webinar presented three studies and revealed several key findings on the subject matter.

The researchers presented evidence that though ASEAN has become an appealing alternative for investment, supply chain diversification (1) has unintentionally fostered closer trade relations between ASEAN and China, and (2) has introduced spillover risks for ASEAN’s intermediate exports to China. They also discussed the evolution of regional supply chains and showed that ASEAN’s export competition has contributed to China’s structural shift from manufacturing to services amid its trade pivot to ASEAN.

The webinar also brought together a panel of distinguished experts to share their unique perspectives. Key highlights that emerged during discussions are as follows.

• First, some discussants argue that there are sound business concerns to reduce vulnerability and strengthen supply chain resilience. ASEAN stands out as an appealing investment destination due to its cost-effectiveness. Geopolitics serves only as an additional incentive to divert investment away from China.

• Second, the discussants agree that ASEAN has yet to fully capitalize on available investment opportunities. The relatively low level of trade within ASEAN suggests insufficient integration of supply chains across the region. They emphasize that a collective willingness and collaboration to integrate regional supply chains is far more important than stiffly competing for FDI. Furthermore, the absence of efficient domestic infrastructure remains a major obstacle to attracting investments.

• Third, reshoring measures are economically inefficient and may pose challenges for countries that increasingly use subsidies to attract investment back home. These subsidies are easy to announce but difficult to phase out. Elevated production cost in a fragmented world economy could impact long-term interest rates and potentially lead to a new inflation regime. Establishing FTAs with more partners around the world is critical for ASEAN to navigate these challenges.

• Lastly, the panel discussed how the upcoming elections in many countries present significant uncertainties and challenges for the global economy, as well as the importance of building a more sustainable supply chain in ASEAN.  

By YI, Xin