Asia’s Response to Great Power Disruption and Global Economic Disorder (Summary)

Opening Remarks

FUKAO Kyoji (Chairman, RIETI / University Professor, IER, Hitotsubashi University)

This 10th joint symposium between RIETI and the Australian National University (ANU) examines how Indo-Pacific countries, which are highly dependent on trade and investment, are responding to rising risks stemming from both the United States and China amid a rapidly changing international political-economic environment. It explores regional dynamics, assesses policy responses, and develops strategies, focusing on strengthening supply chains, rethinking global and regional trade strategies, and enhancing economic security.

Stakeholders from Japan, Australia, Singapore, Malaysia, and India will discuss the most appropriate policy directions for current circumstances. The keynote speech will be delivered by Mr. Matsuo Takehiko, Vice-Minister for International Affairs at the Ministry of Economy, Trade, and Industry (METI), followed by sessions on “Supply Chain Resilience” and “The International Economic Order.”

Keynote Speech

MATSUO Takehiko (Vice-Minister for International Affairs, Ministry of Economy, Trade and Industry)

I would like to address three points in my remarks today: the current situation, necessary measures for resilient supply chains, and the future of the international economic order.

Assessment of the Current Situation

Supply chain disruption risks became evident both during the COVID-19 pandemic and now again through Russia’s invasion of Ukraine, revealing vulnerabilities in energy dependence and defense supply. Both China’s excess production and tightening of export controls on critical minerals, and the United States’ introduction of additional tariffs to “restore the trade balance,” have had serious impacts on other economies and supply chains.

Necessary Measures to Ensure Resilience of Supply Chains

Japan’s rare earth crisis about 15 years ago led to government-backed investments such as the Linas Project, which survived later market turmoil due to continued support. Subsequent entrants could not emerge due to the lack of confidence in terms of competing with low-priced Chinese products, showing that stable demand is as vital as secure supply. Japan now promotes fair evaluation of non-price factors through policy incentives in order to secure stable demand for alternative suppliers. Achieving competitive costs requires sufficient market scale, and such recognition has urged Japan and the EU to cooperate under a competitiveness alliance. Diversity in demand reduces vulnerability for suppliers, and diversity of supply reduces vulnerability for buyers. Thus, collaboration between them is crucial. Such policy intervention should encourage not decoupling but supplier and buyer diversification. Reasonable interdependence works as a stabilizing force. Measures must be sustainable, and partners must ensure reliability. One good precedent of legal frameworks that ensure such reliability is the Japan-Australia Economic Partnership Agreement (JAEPA). It exemplifies this through commitments to consultation, avoidance of export restrictions, and information sharing, supporting stable liquefied natural gas (LNG) supply to Japan.

Future of the International Economic Order

Restoring the functionality of the WTO is urgent. Excessive efforts by major powers to enclose completely self-sufficient domestic supply chains are inefficient and harmful. Building trusted, interdependent partnerships among trusted partners can achieve both prosperity and security. For example, frameworks such as Economic Partnership Agreements (EPAs) and the Asia Zero Emission Community (AZEC) provide this foundation. Advancing green and digital transformations offer a pivotal opportunity to establish resilient, mutually beneficial supply chains.

Session 1: Supply Chain Resilience

Session Chair:
URATA Shujiro (Chairman Emeritus and Distinguished Senior Fellow (specially appointed), RIETI / Professor Emeritus, Waseda University)

Presentation 1

INOMATA Satoshi (Chief Senior Researcher, Institute of Developing Economies, JETRO)

The conventional approaches to promoting supply chain resilience, such as diversification of suppliers and production bases, inventory expansion, development of substitutes and recycling technologies, can effectively address vulnerabilities to natural hazards or pandemics. However, when we consider geopolitical risks, supply chain management requires additional strategic thinking due to its game-like nature. This is because a set of actions taken to mitigate specific risks are bound to influence opponents’ perceptions and thereby alter the entire risk environment itself.

In the classic deterrence theory, two models are generally referred to: deterrence by punishment and deterrence by denial. The former involves demonstration of retaliatory capability to offset gains from preemptive attacks, while the latter seeks to install mechanisms to lower an adversary’s confidence in the effectiveness of hostile actions. Applied to economic security, punitive deterrence corresponds to taking control of core competence of supply chains to leverage economic statecraft. Likewise, deterrence by denial can be associated with development of inter-country economic partnerships, or “friend-shoring,” exemplified by the Indo-Pacific Economic Framework (IPEF) which encourages supply sharing among member countries and hence lowers the perceived effectiveness of opponent’s hostile actions such as implementing export controls of critical materials.

What should governments do to enhance supply chain resilience by means of economic deterrence? I can raise three challenges specific to Japan. First, Japan lags behind major western countries in cybersecurity which must be rectified without delay, though recently there has been a notable development such as the introduction of security clearance systems and active cyber defense law; second, insufficient risk awareness among small and medium-sized enterprises (SMEs) must be properly addressed, especially regarding the relevance of their niche products and technologies to national security; third, there is a need for increased international cooperation for institutional development, potentially via the CPTPP.

Presentation 2

Cassey LEE (Senior Fellow, ISEAS-Yusof Ishak Institute)

When we try to analyze the issue of supply chain resilience in the context of geoeconomics or geopolitics, we have to consider a lot of issues that require a deep understanding of the complex structural networks, from firms, institutions, agencies, and voters and households influencing economic policy. I ask two questions: how vulnerable are supply chains to what I call state-driven shocks, like the policies under TRUMP 2.0, and what governments can or have been doing to enhance resilience.

Malaysia is a small, open economy with a high trade ratio and rising export concentration, especially in Electrical and Electronics (E&E), mainly semiconductors, mostly involving assembly testing and packaging. Within this industry, integrated circuits (ICs) account for almost 80% of semiconductor exports. Foreign inputs still account for about 55% of value-added of the E&E exports. Imports of E&E are highly concentrated between China, Taiwan, Singapore, and the U.S.

The Malaysian government’s policy response has shifted over time from an ad hoc approach to more systematic strategies. The later includes The New Industrial Master Plan 2030, the National Semiconductor Strategy and the forthcoming critical mineral policy. The National Semiconductor Strategy discusses diversification into IC design and fostering local champions. Malaysia has tried to maintain a neutral stance between U.S. and China, formed the National Geoeconomic Coordination Council (NGCC), promoted FDI, explored more trade agreements and provided support to SMEs. Current business surveys show revenue decline, rising costs, and calls for support. I end with this quote from Minister Desmond Lee: economic resilience is not just about withstanding adversity, but transforming through it and thriving in the new environment.

Presentation 3

Yose Rizal DAMURI (Executive Director, Centre for Strategic and International Studies (CSIS))

Three years ago, we were already talking about global fragmentation; now it has only accelerated. In this current situation, talking about supply chains and economic resilience is even more relevant. I want to reflect on how Indonesia is approaching this, especially from the government side.

Indonesia has never been well-integrated into the global supply chain. Trade contribution is declining, and participation in value chains remains much lower than Malaysia or Vietnam. Historically, Indonesia has pursued economic independence, almost obsessively, with a strong push toward self-sufficiency. The government sees current global tensions, trade wars, pandemics, and geopolitical shifts as an opportunity to deepen industrial competitiveness and reduce reliance on external actors.

We have moved from focusing on logistics and connectivity to prioritizing domestic production and stockpiling. The state now plays an oversized role, leading investments and production through state-owned enterprises and direct intervention. Under the Joko Widodo administration, three strategies stood out: down streaming resource sectors via export bans, forcing domestic input sourcing throughout industries, and improving the investment climate. The current president Prabowo has doubled down, especially in food and energy resilience.

Business sectors are unhappy. These inward-looking strategies make sourcing and selling harder. A 2023 study from my institute shows that local content rules hurt both upstream and downstream players. It has not shielded us from price shocks in food, energy, or industrial inputs, while discouraging upstream investment, creating a lose-lose situation. The effectiveness of these policies remains unclear. These approaches reflect how emerging economies may pursue resilience differently, often at the cost of openness.

Discussion

URATA:
How can regional or international cooperation be used to address supply chain disruption, beyond domestic-level responses?

INOMATA:
Global value chains can function both as tools of economic statecraft and as positive channels of cross-border communication that reduce security dilemmas; governments should recognize this dual-use potential and build institutional frameworks, such as through mechanisms like the Council for Security Cooperation in the Asia-Pacific (CSCAP) under the ASEAN Regional Forum, for trust-building and regional security.

LEE:
While standard measures like trade facilitation and digital transformation cooperation are vital, true resilience also depends on deep trust between countries, since interdependence increases vulnerability; geopolitical tensions, such as the border conflicts between Thailand and Cambodia or unresolved issues like Myanmar, are having far greater economic impacts than tariffs and must be addressed to enable meaningful ASEAN cooperation.

DAMURI:
Trust is essential, but so is a shared understanding of what “resilience” and “economic security” mean. Indonesia’s inward-focused interpretation contrasts with countries like Japan, so ASEAN must establish a common conceptual framework to respond cohesively to global challenges.

URATA:
Does pursuing supply chain resilience through self-sufficiency or strategic autonomy inevitably lead to global economic fragmentation? If so, is that acceptable, and if that is not acceptable, what can be done about it?

DAMURI:
If countries adopt inward-looking definitions of resilience or form exclusive economic blocs, fragmentation becomes likely. This could cost the global economy up to 12% of GDP and lead to widespread social unrest unless both economic and political consequences are carefully managed.

LEE:
Since a fragmented world may now be the reality, countries like Malaysia and Singapore aim to navigate it through neutral positioning and adaptive strategies. Multinational corporations increasingly influence national policies, but governments must also protect smaller firms and maintain social stability alongside big-player diplomacy.

INOMATA:
Strategic autonomy does not automatically result in fragmentation, since diversification can support broader global networks. However, excessive friend-shoring risks decoupling, and the boundaries of acceptable policy, such as the idea of a "small yard and high fence," remain undefined and require continued expert dialogue.

URATA:
What are your views on U.S. criticisms about excess capacity and trade surpluses among some of its trading partners, particularly with regard to industrial policy and transshipment issues? How do you interpret and respond to these claims?

LEE:
The criticism mostly targets China, but transshipment concerns are tied to rules of origin, which are complex and difficult to enforce. The U.S. may shift the burden of proof onto companies, as seen in the solar panel case. Multinationals are simply responding to market incentives, and shifts in U.S. trade policy have pushed Chinese firms to relocate capacity to Southeast Asia, which these countries often welcome for the economic benefits.

DAMURI:
The U.S. definition of transshipment goes beyond its traditional interpretation in Southeast Asia. Addressing this should be done regionally, not nationally, with ASEAN leading a unified response. Tools like the ASEAN Single Window could be expanded, and ASEAN should also clarify its stance on economic security, since the U.S. is linking transshipment and rules of origin to broader security concerns.

URATA:
How do you view the role of public-private partnerships in promoting supply chain resilience? In Japan, some suggest this partnership is limited. What is the situation in your countries?

INOMATA:
In Japan, events like ECONOSEC Tokyo are helping raise awareness of economic security across government and private sectors. The key shift is that economic security is now treated as private sector risk management instead of simple compliance, with the private sector expected to act independently, using information from the government, rather than merely complying with regulations.

DAMURI:
In Indonesia, supply chain resilience policies are largely state-driven, with the private sector marginalized in both discussion and policy formation. Despite being excluded from strategic policy planning, private firms are still expected to manage the resulting risks on their own.

LEE:
In ASEAN countries like Singapore and Malaysia, the public-private partnership takes a different shape, often centered on information-sharing among governments, multinationals, and agencies to make up for deficiencies. Large firms can hold more strategic information than states, sometimes even influencing foreign policy, as seen in the SoftBank–TRUMP example. Institutionalizing this flow of information is key to improving cooperation, though the context differs from Japan, where domestic firms dominate.

URATA:
Thank you very much. We received many more questions, but due to time constraints, we must end here. I will save further comments for the wrap-up session. Please join me in thanking all the panelists for their excellent discussions.

Session 2: The Future of the World Economic Order

Session Chair:
Shiro ARMSTRONG (Non-Resident Fellow, RIETI / Professor, Crawford School of Public Policy, Australian National University; Director Australia-Japan Research Centre; Director, East Asian Bureau of Economic Research)

Presentation 1

Biswajit DHAR (Former Professor, Jawaharlal Nehru University)

India is caught in the geopolitical crossfire between the U.S. and China. After decades of alignment with the Soviet Union/Russia, India shifted toward closer U.S. ties, joining initiatives like the Quad and IPEF. Politically aligned with the US, India is nonetheless economically dependent on China, its largest supplier of intermediate goods. As China reduced its trade with the U.S. post-Trump 1.0, India’s exports to the U.S. rose, now accounting for a quarter of its total exports, while 17% of imports come from China.

India’s mobile phone and pharmaceutical sectors rely heavily on U.S. markets, yet Indian exports have been sluggish due to its refusal to import key U.S. interests like agricultural products. Domestic political sensitivity around small farmers prevents higher agricultural imports, despite India seeking increased visas for professionals.

Under Trump, India initiated bilateral trade talks with the U.S. for the first time, but these stalled when the U.S. demanded greater agricultural market access, especially for corn and soy. Tariffs followed, 25% on general trade and a further 25% for importing oil from Russia. India sees these as retaliation for its refusal to open agriculture, and not for its oil imports.

Ironically, it was U.S. pressure that initially encouraged India to buy Russian oil to stabilize markets. India benefitted during post-COVID economic reset, via imports of discounted crude. Since August 2025, India seems to have pivoted closer to China, with Indian Prime Minister attending Shanghai Cooperation Organization meetings, backing Chabahar port, and may also reengage with RCEP. The U.S.-India trade agreement now appears unlikely to conclude soon, and India may shift its focus toward China and the Global South.

Presentation 2

Rebecca Fatima STA MARIA (Director, Institute for Democracy and Economic Affairs / Former Executive Director, APEC Secretariat)

Malaysia’s ASEAN Chairmanship focused on 18 priority economic deliverables under four pillars: trade and investment, inclusive and sustainable pathways, integration and connectivity, and digital resilience. Key developments included the ASEAN-Gulf Cooperation Council (GCC)-China Summit, which marked an important step in leveraging ASEAN’s convening power, and the formation of the ASEAN Geoeconomics Task Force in response to the Trump Administration’s trade policy, as well as global geo-economic developments. For the first time, ASEAN Economic Ministers and Foreign Ministers will meet jointly to address overlapping economic security concerns and challenges.

Other significant initiatives include progress on investment and energy cooperation, particularly the ASEAN Power Grid and Centre of Excellence for Micro, Small, and Medium Enterprises (MSMEs) to support the green transition. The integrated semiconductor supply chain initiative and renewed tourism focus were also central. The Digital Economy Framework Agreement (DEFA) reached a substantial conclusion but missed the goal of signing this year. Work also advanced on startup ecosystems and an ASEAN AI strategy.

Unfinished business includes DEFA implementation, launching the Women’s Economic Empowerment Centre in Malaysia, and accelerating progress on RCEP. While ASEAN Plus One agreements have been upgraded, RCEP uptake remains slow. A dedicated institution is needed to communicate and implement RCEP effectively, with better monitoring of initiatives essential.

The private sector launched major efforts through the ASEAN Supply Chain Coordination Council (ASCCC), with a dashboard to track supply chains, beginning with textiles and semiconductors. The ASEAN Business Entity now allows intra-corporate transferees, and an ASEAN Initial Public Offering (IPO) Prospectus is underway to support cross-border equity listings.

Presentation 3

KAWASE Tsuyoshi (Faculty Fellow, RIETI / Professor, Faculty of Law, Sophia University)

Since January, U.S. trade policy has shifted dramatically under Trump, centered on three pillars: product-specific tariffs under Section 232 on steel, aluminum, autos, and wood; country-specific tariffs under the International Emergency Economic Powers Act (IEEPA) targeting disfavored nations; and reciprocal tariffs with levels based on trade imbalances. This “Turnberry system” replaces multilateralism with a web of bilateral deals outside the WTO, eroding the rule of law, undermining the Most-Favored-Nations (MFN) principle, and abusing national security exceptions.

With the U.S. accounting for less than 15% of global trade, most of the remaining 85% still support the rule-based system. These economies must act to preserve and reform the global trading order. First, a standstill agreement can reaffirm commitment to WTO rules. Second, expansion of the Multi-party Interim Appeal Arbitration Arrangement (MPIA) can enforce existing rules despite WTO appellate body paralysis. Major users like Argentina, India, Indonesia, and Korea should join.

Rebuilding a middle power alliance, such as through the Ottawa Group, is necessary to maintain rule-based and free trading system, and can increase leverage in negotiations with the US. Core members should include Japan, Australia, Canada, the UK, and the EU. Leveraging mega Free Trade Agreements (FTAs), especially the CPTPP, is essential. Expansion to more ASEAN states and closer EU-CPTPP ties should be pursued, alongside practical cooperation on supply chains and non-tariff barriers.

Long-term reforms must green the system, enhance digital trade governance, address trade and security issues, and ensure fairness through flexible trade remedies and stricter rules on subsidies and non-market behavior. The Turnberry system is damaging, but cooperation among the 85% can still preserve the multilateral trading system.

DISCUSSION

ARMSTRONG:
What is India’s China strategy, given its need for Chinese intermediates and foreign investment? And is there any chance India will shift toward greater East Asian integration and a stronger multilateral role?

DHAR:
India is beginning to improve relations with China, with a recent RCEP invitation including incentives to import more from India. However, industrial policy efforts have stalled, and although structural change is uncertain, closer ties with China may eventually lead to greater regional and multilateral participation.

ARMSTRONG:
Is ASEAN’s recent coordination sustainable, especially under pressure from rising Chinese exports and upcoming U.S. demands for reciprocal trade deals? What risks does the potential Trump agreement pose?

STA MARIA:
Tariffs are only part of the issue; unclear rules on Chinese content and transshipment pose greater challenges. ASEAN must also gain clarity regarding definitions, while upholding MFN principles. We must also ensure transparency among member states and avoid accepting free rider clauses in future U.S. deals. The private sector is urging ASEAN to create better rules of origin, aid in trade facilitation, policy coordination, and full implementation of existing commitments.

ARMSTRONG:
Don’t the Turnberry deals completely undermine efforts to defend the multilateral system? And how does RCEP factor into that defense compared to CPTPP?

KAWASE:
Turnberry deals weaken MFN principles even among the 85%, which is why a standstill agreement is essential to uphold WTO rules. RCEP remains relevant but is less ambitious than CPTPP, lacks key rules regarding, for e.g., state-owned enterprises and labors, and includes China, raising concerns over economic coercion, including recent cases. CPTPP, without the U.S. or China, offers a more stable framework, and linking CPTTP with the EU while expanding ASEAN participation in CPTPP would better support a rule-based system.

ARMSTRONG:
Is Japan currently working with other middle powers like Australia or Korea, or supporting ASEAN-led initiatives such as the RCEP Leaders’ Meeting to protect multilateral interests?

KAWASE:
There are no visible movements, but some quiet senior-official level discussions seems to be happening; it may develop further out of necessity and lack of other options.

ARMSTRONG:
What is the role of middle powers in working with India to support the multilateral system?

DHAR:
Talks have occurred within government, but nothing public; transparency is needed so that discussions and expectations can be openly assessed and understood.

STA MARIA:
RCEP offers more space for developing economies than CPTPP, and ASEAN's deep integration with China makes decoupling unrealistic; it is better to engage China within RCEP, and ideally link RCEP and CPTPP into a larger framework.

ARMSTRONG:
It is important for RCEP and CPTPP to be coordinated and mobilized in the same strategic direction, without trade negotiators slowing progress, and that they include 85% of trade, and notably China, which has a major stake in existing rules This is the best way to provide a solid foundation for future rules-based progress. The broader the frameworks, the better for enabling middle powers to support the multilateral system.

Concluding Remarks

Shiro ARMSTRONG (Non-Resident Fellow, RIETI / Professor, Crawford School of Public Policy, Australian National University; Director Australia-Japan Research Centre; Director, East Asian Bureau of Economic Research)

This symposium, the 10th RIETI-ANU since 2018, has explored regional issues from middle power perspectives, beginning with Japan’s leadership in concluding the CPTPP. Today’s focus on Asia’s response to great power disruption and global economic disorder is timely as we unfortunately continue the current trajectory toward disorder. Public discussions like these are vital for consensus-building and shaping policy in Japan and the region, complementing official dialogues. Middle power coalitions cannot function without Japan’s leadership, particularly in protecting the multilateral system encompassing 85% of global trade beyond the United States. Upcoming ASEAN meetings may demonstrate Southeast Asia’s capacity for positive multilateralism, addressing subsidy definitions, overcapacity, and industrial policy. An open global economy remains essential for efficient, sustainable energy transitions and advancing green supply chains.

URATA Shujiro (Chairman Emeritus and Distinguished Senior Fellow (specially appointed), RIETI / Professor Emeritus, Waseda University)

Japan’s role as a middle power in shaping the rules that govern the 85% of global trade outside the United States is crucial, and I hope this message reaches the incoming administration. Current leadership debates neglect pressing international economic issues. The first session highlighted two sides of supply side resilience. Malaysia’s reliance on imported parts for semiconductors and its exports of semiconductors raises dual vulnerabilities, while Indonesia and Japan focus more on material procurement, supply side vulnerability. Governments have responded to vulnerabilities in key products using the “three P’s”: protection, promotion, and partnership. Yet assessing these policies' effects is complex and must consider their uneven impacts across groups. For example, food material protection helps producers but harms processors. Economists face challenges in evaluating policy under national security constraints, which are difficult to quantify, and in dealing with increasingly endogenous policies such as tariffs which are mainly driven by political motives.