The huge Chinese market and its BRI infrastructure investments remain highly attractive to ASEAN, China’s recession notwithstanding. Chinese manufacturing investment is also expanding, reinforcing ASEAN’s position as a key part of global production hubs and supply chains.
This growth model carries inherent risks, however. Dependence on China for key components and intermediate goods is raising American suspicions that ASEAN may be a hub for Chinese goods being rerouted to third-country markets. Beyond that, if the model hardens into simple assembly of Chinese-origin inputs for export to third countries, it will limit the added value and economic impact generated within the region itself.
At the same time, long seen as a counterweight to China, the United States is no longer an unconditionally reliable partner. While maintaining security engagement, Washington has distanced itself from the GATT and WTO free trade order that underpinned ASEAN’s growth, showing little inclination to open its own markets while imposing unilateral high tariffs in the name of reciprocity.
Yet ASEAN’s challenge is not merely a choice between the United States and China. It faces a new dilemma: deeper production dependence on China will stoke American wariness, while abruptly severing that dependence would damage the region’s own industrial base. What is needed is a framework that avoids over-reliance on either side, lets ASEAN generate its own value, and preserves the region’s freedom to choose its markets and partners.
Toward ‘Made in ASEAN 2.0’
This is where new opportunities for “co-creation” between Japan and ASEAN emerge. Going beyond conventional support for industrialization, the aim is to advance ASEAN jointly into a production region that generates distinctive value for global markets, based on industrial clusters and supply chains formed through investment by Japanese companies over many years.
First, ASEAN should shift from conventional assembly and export to become a high value-added “value creation hub” covering everything from research and development to design, components and materials, production, certification, and services. The key is not to exclude China. While continuing to source components from China and elsewhere, the idea is to promote substantial processing and accumulation of technology and knowledge within ASEAN itself, generating employment and income in the process. Call this “Made in ASEAN 2.0.” The label signals to global markets that these are not Chinese goods merely rerouted through ASEAN, but products whose value was created in ASEAN.
Second, the priority is to apply the expertise Japanese companies have accumulated in human resource development, local supplier formation, production management, and technology transfer to next-generation industries such as EVs, semiconductors, digital solutions, AI, green transformation, and critical minerals. Japanese companies will also need to pivot from “making in ASEAN” to investing in “creating value in ASEAN,” including through research, development, and design.
Third, ASEAN itself needs to further deepen AFTA (ASEAN Free Trade Area), harmonize non-tariff measures, standards, certifications, and customs systems, and push the eleven markets toward a more unified production and market space. The ASEAN Geoeconomics Report 2025 proposed a common external tariff (CET) as an old idea worth bringing back. A CET can support intra-regional procurement of parts and materials and the formation of regional supply chains. Japan should link institutional integration with corporate investment and technology transfer, to help build “Made in ASEAN 2.0” together with ASEAN.
Rebuilding free trade from Japan and ASEAN
Industrial policy alone cannot deliver “Made in ASEAN 2.0.” As the free trade system erodes between the United States and China, Japan and ASEAN should take on the task of rebuilding the rules for the next era.
With Japan and ASEAN at the center, existing FTA and EPA networks — CPTPP, RCEP, AFTA, and the Japan-EU EPA — can serve to connect middle powers such as the EU, Canada, Australia, South Korea, and India. All are ASEAN dialogue partners, and existing ministerial and summit meetings provide ready forums. The first step is to promote institutional connectivity where cooperation is already feasible: rules of origin, digital trade, customs clearance, certifications, green products, and supply chain transparency.
This is not a “third bloc” designed to challenge the United States and China. It is an open network that complements the WTO, available to any country or region willing to accept transparent rules, without closing the door on Washington or Beijing. The goal is not a new bloc but the overcoming of polarization itself.
What Japan should offer ASEAN is more options — connections to multiple markets, technologies, capital, and supply networks.
The common goal of Japan and ASEAN should not be simply free trade that lowers tariffs. It should be next-generation free trade in which where value is created is clearly identifiable, and that value flows back to production regions as employment, technology, and income. ASEAN would be transformed from a hub for rerouted exports into a value creation hub, a model that could be extended to other middle powers. This is the “third path” to overcoming U.S.-China polarization.
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