Outcompeting China Starts Here: How Southeast Asia Strengthens US Supply Chains and Global Influence  

By Hon. Mark Kennedy 

In the global competition for technological leadership and economic resilience, Southeast Asia is quickly emerging as a critical node. Anchored by countries like Vietnam, Malaysia, and Singapore, the region holds enormous promise for next-generation semiconductor and artificial intelligence (AI) development. With the right strategy, the US and its allies can deepen their economic footprint, fortify global supply chains, and shape a secure and open digital future. But this moment requires more than rhetoric—it demands investment, smart regulation, and careful coordination to ensure these gains don’t inadvertently benefit strategic competitors like China.

Southeast Asia's High-Tech Momentum

Southeast Asia is attracting record levels of foreign direct investment (FDI), even as global FDI declines. As Courtney Fingar highlights, the region secured $235 billion in FDI in 2024—outpacing China—as multinational firms seek alternatives amid geopolitical tensions and supply chain realignments. Vietnam, in particular, is capitalizing on this trend. With targeted tax incentives, a national chip strategy, and ambitious goals such as100 chip design firms and multiple packaging and testing facilities by 2030, Vietnam is positioning itself as a regional semiconductor hub.

Dr. Prashanth Parameswaran underscores that Vietnam is not alone. Malaysia is scaling its semiconductor ambitions with its National Semiconductor Strategy, while Singapore leads on AI governance and data center infrastructure. Countries like Thailand, Indonesia, and the Philippines are also advancing national strategies to move up the value chain, develop local-language AI models, and integrate into global supply chains.

Europe is taking notice too. As Dr. Klaus Larres explains, the EU’s “de-risking” strategy from China increasingly prioritizes Southeast Asian countries like Vietnam. EU leaders see the region not just as a trade partner but as a new frontier for strategic investment in chips, AI, and critical minerals. In fact, Vietnam is already the EU’s largest trading partner in ASEAN—a trend that will only deepen.

Why It Matters for the United States

For the US, investing in Southeast Asia’s AI and semiconductor future serves both strategic and economic objectives:

• Supply Chain Diversification: Building trusted high-tech capacity in Southeast Asia reduces dependency on China and mitigates risk around Taiwan.
• Strategic Influence: Ensuring countries like Vietnam, Indonesia, and the Philippines host AWS, Microsoft, Oracle, or Google Cloud facilities—rather than Alibaba, Huawei, or Tencent Cloud—protects digital sovereignty and curbs authoritarian tech influence.
• Economic Access: Southeast Asia’s digital economy is projected to reach $2 trillion by 2030. US firms that invest early will reap the benefits and shape emerging regulatory standards.
• Geopolitical Leverage: These investments are a hedge against China’s economic coercion and digital authoritarianism. They give America and its allies a stake in Southeast Asia’s long-term development.

Yet the US risks falling behind. Unlike China, which joins Southeast Asian nations in the Regional Comprehensive Economic Partnership (RCEP), and US allies like Japan and Australia, which join many Southeast Asian nations in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the US is on the outside looking in. This leaves American firms disadvantaged by higher tariffs, limited market access, and diminished influence over trade and digital standards. America will continue to be disadvantaged so long as it lacks binding trade provisions with many Southeast Asian nations.

The Danger of Overreach: Rethinking the AI Dispersion Framework

While vigilance is necessary, Washington must be careful not to overregulate in ways that weaken its own position. As I noted recently, the proposed AI Dispersion Framework, designed to restrict the spread of powerful AI capabilities abroad, may inadvertently hamper US firms’ ability to invest in Southeast Asia. The rule’s vague definitions and broad reach risk deterring US cloud, chip, and AI companies from expanding into partner countries—opening the door for Chinese firms to dominate by default.

This is a dangerous trade-off. The real risk is not that Southeast Asia develops AI capacity, but that it does so through untrusted systems and opaque partnerships. It is far better for the US to be present and shaping responsible AI use than to leave a vacuum that authoritarian actors will fill.

Washington should instead work with allies and Southeast Asian partners to establish tiered, transparent export control regimes that work in tandem with US rules to prevent high-risk technology transfers to China, while enabling productive, secure AI and semiconductor cooperation. Safeguards, not blanket bans, are the way to keep technology out of the wrong hands without stifling growth in the right ones.

Building Trusted Tech in Southeast Asia

To make Southeast Asia a long-term success story for semiconductors and AI, several conditions must be met:

1. Upgrade the Ecosystem: Countries must move beyond assembly and testing into higher-value areas like chip design, fabrication, R&D, and AI model development. Singapore and Malaysia are leading examples.
2. Strengthen IP and Data Governance: Investors need confidence their technology and data will be protected. ASEAN’s efforts to develop regional standards are a good start but need to go further.
3. Invest in Talent: Building a pipeline of engineers, data scientists, and chip designers is essential. Workforce partnerships with US universities and companies could accelerate progress.
4. Modernize Infrastructure: Reliable energy, robust 5G telecommunications front trusted providers, and resilient logistics are critical for attracting advanced manufacturing and data centers.
5. Streamline Bureaucracy: Faster approvals, clearer regulations, and consistent tax incentives will draw more FDI, particularly for long-term projects.
6. Focus AI Investment Strategically:
   • Data Centers: Anchor digital ecosystems and support model training.
   • Local-Language LLMs: Empower inclusion and governance in diverse linguistic contexts.
   • AI Application Across Sectors: From agriculture to healthcare to manufacturing, applied AI can drive inclusive economic development and digitization.

Don’t Ignore Legacy Chips

While the US CHIPS and Science Act has prioritized advanced semiconductor production, it must not overlook the strategic importance of legacy or foundational chips. These are the workhorses of the digital economy and vital to both commercial supply chains and military platforms.

Establishing large-scale legacy chip production in the US is difficult due to thinner profit margins and weaker commercial incentives. Southeast Asia, and potentially Mexico, offer more viable, near-term options for trusted, lower-cost production. Supporting these ecosystems not only reduces Chinese market dominance but also strengthens the global network of allied tech manufacturing.

A Moment of Strategic Choice

This is not just a commercial opportunity—it’s a strategic imperative. The US has the chance to lead in shaping a democratic digital future in Southeast Asia, anchored by smart investment, responsible innovation, and strong partnerships. But it must act with urgency, clarity, and care.

Rather than pulling back under the guise of containment, Washington should double down on building a network of trusted partners. Across Southeast Asia, that future is within reach—if the US is willing to help build it.

How Southeast Asia Strengthens U.S. Supply Chains and Global Influence 

By Courtney Fingar 

In the great global realignment of supply chains sparked by US-China trade wars and exacerbated by the shock of the Covid-19 pandemic, the ASEAN bloc appears to be among the winners.  

According to Global Investment Trends Monitor published by UN Trade & Development (UNCTAD) in January 2025, while global FDI fell by an estimated 8% in 2024, inflows to ASEAN countries increased 2% to a record $235 billion. A major separation in the FDI fortunes of ASEAN versus China is occurring, with China’s inflows dropping 29% for a second year to now sit 40% below their 2022 peak, according to UNCTAD.  

The ASEAN region has overtaken China as the preferred destination for manufacturing investment from OECD countries. More than $55 billion was pledged by OECD-headquartered companies to build factories in ASEAN countries in 2022 and 2023, more than double the $21 billion announced in China, according to fDi Intelligence, a data service from the Financial Times. This compares notably with 2018, when China attracted more than twice the amount of manufacturing investment of all ASEAN countries combined. 

Within this context, Southeast Asia has the potential to become a major hub for semiconductor and AI investments. ASEAN’s semiconductor sector is gaining momentum as US export controls, enforced since October 2022, restrict China’s access to advanced chips. Japan and the Netherlands have adopted similar measures, further driving the shift.  

The ASEAN semiconductor market was valued at $26.91 billion in 2020, experiencing a 0.2% decline due to the pandemic-driven demand shock across all regions. However, the market rebounded to $27.64 billion in 2021 and is expected to reach $41.88 billion by 2028, growing at a 6% compound annual growth rate from 2021 to 2028. 

Beneficial economic policies and regional integration have allowed for the vertical integration of production networks among ASEAN countries and created a unified supply chain for high-tech products. The implementation of the ASEAN Economic Community (AEC) integration plan aims to increase global and intra-regional trade while attracting multinational companies to invest in emerging technologies and their production. Expanding bilateral trade agreements in semiconductors and AI technology can provide a further boost. 

Vietnam is among the countries in the region seeing rapid intensification of semiconductor activity fueled by competitive labor costs, attractive tax incentives and strategic partnerships with the US. The government aims to establish at least 100 chip design firms, a fabrication plant, and 10 packaging/testing facilities by 2030. To support these goals, Vietnam has launched investment incentives to attract semiconductor companies, including streamlined investment approvals and financial support for R&D; and a dedicated fund for semiconductor R&D is being introduced to support local and foreign companies. 

AI has become one of the most widely adopted technologies in manufacturing. Rising demand for AI-driven components from both public and private sectors is accelerating development in the semiconductor industry and creating major growth opportunities for ASEAN semiconductor players. 

To continue to grow in importance as a hub for semiconductor and AI activity and to attract more FDI in these sectors, the region should first focus on diversifying its activities and ecosystem. 

While ASEAN countries such as Vietnam, Singapore, Malaysia and Thailand have carved out important roles in semiconductor assembly and downstream processing, they have not yet fully succeeded in moving into higher value-added activities like chip design, R&D and more advanced manufacturing. And in addition to manufacturing, the region should prioritize developing its capabilities in AI, software and data centers to broaden its high-tech ecosystem and FDI portfolio. Software innovation is key as AI and machine learning drive demand for specialized semiconductor solutions. By expanding beyond manufacturing, ASEAN can strengthen its position in the value chain and create a more resilient semiconductor industry. 

Second, as ASEAN shifts from basic manufacturing to high-value industries, strengthening u property (IP) frameworks and integrating into global R&D networks will be essential. To attract top-tier semiconductor investments, the region must implement robust security measures to prevent technology leaks and align regulations with global standards. Enhancing IP safeguards and leveraging existing semiconductor infrastructure will boost investor confidence and solidify ASEAN’s space in the high-tech value chain. 

Third, investing in talent and workforce development is crucial to help ASEAN countries compete in semiconductor and AI industries. Strengthening STEM education, attracting foreign expertise and fostering industry-academia partnerships will help build a skilled workforce of engineers, data scientists and researchers. The Singapore National AI Strategy 2.0 exemplifies proactive talent development which is helping to position the country as a leader in AI innovation.  

On top of these internally driven improvements and support mechanisms, the US can play a pivotal role in advancing ASEAN’s semiconductor and AI ambitions by supporting infrastructure development, incentivizing investment and building strategic partnerships. Strengthening logistics, transportation and digital infrastructure in ASEAN countries would enhance regional supply chain efficiency, benefiting both US and global semiconductor firms.  

Additionally, the US can encourage Western semiconductor companies to expand in ASEAN, particularly in high-value areas like wafer fabrication and integrated circuit design, reducing reliance on any single country for critical technologies. Joint ventures and knowledge-sharing initiatives between US and ASEAN firms would further bolster capacity building and technological advancement. By helping ASEAN emerge as a stronger player in the semiconductor and AI industries, the US can diversify its own supply chains, enhance global tech resilience and counterbalance geopolitical risks in the semiconductor market. 

Opportunities Abound in Southeast Asia’s Technology Landscape 

By Dr. Prashanth Parameswaran 

Key emerging Southeast Asian economies such as Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam will play an important role in the extent to which the region can attract more foreign direct investment in technology-related domains. This includes specific areas within the technology realm such as artificial intelligence (AI) and semiconductors, despite the challenges therein recognized by policymakers across these economies. 

At the regional level, Southeast Asia is already attracting significant attention in this regard due to ongoing initiatives. For example, ASEAN’s release of a new guide on AI governance and ethics attracted significant global attention considering that it was among the earliest regional frameworks of its kind. Similarly, the ASEAN Digital Economy Framework Agreement (DEFA) that has been in the works had earlier been forecasted by one count to double the value of the regional digital economy to $2 trillion by 2030. ASEAN has also been trying to shape regional discussions on areas like electric vehicles policy and integrated semiconductor supply chains. This is a product of long-held regional advantages. Indeed, one earlier estimate noted that the region is the second-largest semiconductor exporter globally , accounting for nearly a quarter of world chip exports with five of its eleven countries being in the top 15 semiconductor exporter list

Individual states will also play critical roles in this regard. Vietnam has understandably attracted significant attention given its high growth rates and new government policies. For instance, Resolution No. 57 on science, technology and innovation laid out a series of important quantitative targets tied to its twin economic goals of becoming an upper-middle income country by 2030 and a high-income country by 2045. At the same time, Vietnamese officials including party chief To Lam have also noted that tough work lies ahead to get past challenges. These include bureaucratic procedures costing up to 50 percent of scientists’ time and a research and development budget sitting at just 0.7% of GDP relative to 2% or higher from developed nations. 

Other players are also notable beyond Vietnam. Malaysia is trying to build on its early start in the semiconductor space by virtue of a strong company presence in its northwest in Penang. Malaysia’s National Semiconductor Strategy released last year seeks to overcome long-recognized challenges in moving up the value chain, including training and upskilling 60,000 high-skilled Malaysian engineers and setting up at least 10 indigenous Malaysian companies in design and advanced packaging. Neighboring Singapore plays a critical role not just in socializing regional AI conversations, but even in shaping emerging standard-setting discussions globally on AI in areas like safety. This is despite the constraints Singapore officials recognize in finding regional consensus on standards within an economically diverse region (Singapore’s GDP per capita is nearly $100,000, while that of Laos is under $2,000 by one count). 

Still other economies are also key to watch given their attributes such as market size, growth rates and investor traction. Indonesia and Thailand are critical pieces of the conversation as Southeast Asia’s two largest economies by size in maritime and mainland Southeast Asia respectively. Tech-specific opportunities have been overshadowed by the electric vehicles supply chain in the headlines based on legacy competencies of both economies (critical minerals in the case of Indonesia and traditional automotives in the case of Thailand). But these countries have seen initiatives in areas like local language AI models as well as semiconductor strategy development. The Philippines has also seen a surge in interest from some firms eyeing its semiconductor potential and robust recent growth numbers. Philippine President Ferdinand Marcos Jr. has himself acknowledged that this interest requires policy adjustments, even though it is recognized that Manila still has a few key steps to take to boost opportunities in this space. 

Despite Warming Ties with Beijing, Vietnam Will Benefit From the EU’s Continuing De-Risking Strategy with China 

By Dr. Klaus Larres 

More than six years ago, in 2019, the EU Commission published a landmark strategy paper which for the first time seemed to take the economic and political challenge from China seriously. The EU referred to China as “a partner for co-operation, an economic competitor and a systemic rival.” With the help of this three-pillared model, the EU began to recognize the difficult fact that China was both an indispensable economic partner but also a rival as well as a strategic and ideological foe. The search for a solution to overcome this intractable dilemma led to the EU’s “de-risking” strategy. While co-operating and trading with China continued to be important and could not be avoided, European governments and companies were expected to gradually scale down their dependence on China, not least in the high-technology sectors, including chips manufacturing and the rapidly developing AI sphere. 

Since Donald Trump’s inauguration for his second term as US president in January 2025 nothing short of a revolution in transatlantic relations has taken place. Trump’s quick rapprochement with Russian President Vladimir Putin, his turning away from the Atlantic Alliance and increasing hostility toward Europe have persuaded politicians in most EU countries to re-evaluate their relations with both the US and China. EU Commission President Ursula von der Leyen has begun to mellow her rhetoric about relations with China. She now talks about “an era of hyper-competitive and hyper-transactional geopolitics,” in which the EU needs to “engage constructively” with Beijing to “find solutions in our mutual interest.” For the time being, however, “de-risking” remains the EU’s main policy approach toward Beijing. Making Europe less dependent on China continues to be a sensible and forward-looking policy as it is hardly wise for the EU to put all of its economic eggs into the one China basket. 

Among the export and investment markets the EU is particularly interested in for its “de-risking” strategy are the countries of Southeast Asia, including Vietnam. German Chancellor Olaf Scholz’s visit to China in November 2022 kicked off with a visit to Vietnam to investigate export and investment opportunities. Vietnam’s population of 100 million and its young and dynamic demographic constitute a highly competitive workforce. In fact, in the coming months the EU Commission President and other senior EU officials, such as Trade Commissioner Marcos Sefcovic, and leading European politicians, such as French President Macron, are planning to visit Vietnam.   

The EU is already one of the largest foreign investors in the country. In fact, Vietnam is the largest EU trading partner among all ASEAN states. Already in 2019, the EU signed a free trade agreement with Vietnam which came into effect a year later. However, the advantageous Investment Protection Agreement, also signed in 2019, has not yet been ratified by nine EU members though it would enable EU companies to invest in Vietnam on the same basis as local Vietnamese businesses. In 2024, total trade between the EU and Vietnam amounted to an impressive 68 billion euros ($73,295,212).  

European exports to Vietnam notably consist of high-tech equipment, aircraft and pharmaceutical products, while imports from Vietnam to Europe mostly focus on electronic goods, textiles and clothing (including shoes), rice, and coffee. But in order to counter its huge dependence on China the EU is not so much interested in trading and investing in fairly traditional products but above all in the development of relations in the high-tech sphere.  A key focus is exploring Vietnam’s mineral wealth, such as lithium, and the country’s rare earths deposits. After all, Vietnam is not only the world’s second largest producer of tungsten but also the sixth largest provider of rare earth products which are essential for solar panels, wind turbines and above all electric vehicles. Vietnam in turn is interested in obtaining European arms and weaponry. Since the beginning of the Ukraine War it has begun to wean itself off its dependence on Russian arms manufacturers. 

Altogether there is plenty of room for the further development of European-Vietnamese trade and investment relations. Although the aggressive anti-European trade policy of the Trump administration has led to a certain warming of Brussels’ economic relations with China, the EU’s “de-risking” approach toward Beijing is still in force and will remain in force for the foreseeable future. And this in turn will work greatly to Vietnam’s economic advantage. Thus, the prospects for the continued development of intensive trade and investment relations between the EU and Vietnam are rather good.