Southeast Asian Strategic Supply Chains Under Geopolitical Competition: The Logic of Reshaping from Connector to Key Node

Southeast Asia's strategic supply chains, covering renewable energy and frontier technologies, have become a strong driver of the region's economic growth, currently accounting for over 20% of the region's exports and 50% of its foreign direct investment. As a "connector" economy between the US and China, Southeast Asia's strategic position means its trade and investment models benefit from the restructuring of the global economy, but it also exposes its vulnerabilities. As the decoupling process between the US and China accelerates, this connecting role is turning into a potential exposure to geopolitical economic tensions.

Geopolitical fragmentation is focusing the region's economic attention on "strategic supply chains"—those key industries that support the future economy and geopolitical power. These areas include the energy transition, key and emerging technologies such as semiconductors, drones, and industrial robots. Photovoltaic technology, wind turbines, batteries, and electric vehicles (EVs) are also becoming pillars driving the energy transition and future energy security, and critical minerals are indispensable inputs for these technologies.

Against the backdrop of intensifying US-China competition, these strategic sectors are becoming focal points of geopolitical economic conflict. Both the US and China are striving to limit their dependence on each other in key technologies and resources, which directly affects Southeast Asia's connecting economies highly integrated into global value chains. Therefore, the risks facing regional strategic supply chains are no longer just commercial competition but issues concerning national security and economic resilience. The decline in China's share of strategic technology product imports highlights the urgency of reshaping regional supply chains.

Research indicates that despite increasingly severe geopolitical constraints, strategic supply chains still provide a strong growth path for the regional economy. Emerging economies face challenges in seeking convergence with developed economies, and strategic supply chains consolidate this advantage by nurturing technology-intensive industries. These industries not only create huge export and investment opportunities but also generate demand for high-skilled labor and related industrial cluster effects.

Faced with geopolitical economic pressures, Southeast Asian governments are actively supporting these strategic sectors through trade and industrial policies. However, successful industrial policies require precise calibration. Research emphasizes that policy interventions must be made under appropriate conditions, fully considering their match with market size, government capacity, and fiscal space. Blindly subsidizing any strategic sector can bring high costs and the risk of diminishing marginal returns. Therefore, the effectiveness of policies depends on their targeting, requiring prioritization based on the strategic importance of different supply chains.Core analysis suggests that in the current environment, semiconductors should be the top strategic focus, followed by the electric vehicle and battery ecosystem, as they bring significant economic returns. Opportunities in areas like critical minerals and photovoltaic manufacturing are relatively limited, and policy intervention needs to be more cautious. At the regional level, coordination and cooperation are needed in areas such as semiconductor investment, the electric vehicle ecosystem, skills development, and critical mineral governance to unify national policies and jointly cultivate these long-term strategic industries. At the same time, accelerating the regional decarbonization process will bring stronger demand-side benefits to these supply chains, thereby consolidating regional long-term competitive advantages.