The Pacific Forum, in collaboration with the Institute of International Relations, National Chengchi University, held the “Taipei Economic Seminar” on October 22-23, 2025, in Taipei, Taiwan. About 60 senior researchers and officials attended, all in their private capacity. The off-the-record discussions focused on the changing geo-economic security environment in the Indo-Pacific region, with specific emphasis on the regional trade environment, approaches to economic development and capacity building, and the international finance system. The format for the discussion was short presentations followed by a lengthy discussion session to provide an opportunity for all participants to articulate their views on the topics covered. Below is an analytical summary of the discussion:

Economic interdependence, which has been promoted for decades through globalization and multilateral supply chains, is now considered a risk rather than an unalloyed good as the concentration of components and final goods suppliers has become a worrying vulnerability. The desire to reduce vulnerability has forced a recalculation of economic transactions. Security has eclipsed efficiency as the most important element in government thinking. Businesses are beginning to follow suit. Amid concerns for national security, a new economic order is being built around resilience and rather than market efficiency.

Strategic competition has leached into almost every aspect of international economic activity. It affects international institutions and the rules of international engagement. It is rerouting international economic engagement generally and global production networks in particular.

Traditional economic strategies for both governments and businesses are strained by new geopolitical considerations, in particular intensified competition between the United States and China. While it often denies doing so, the US is increasingly pushing allies and trade partners to take sides in that struggle. While China protests this attempt to influence their decision making, Beijing is trying to force choices on governments as well.

Southeast Asia is key to intensifying geoeconomic competition and one of the chief battlegrounds. ASEAN has a collective GDP of $3.9 trillion economy, is the world’s fourth largest exporter, the second largest FDI destination, and third biggest market. Its members are aware of their heft and have tried to maintain equidistance between the geopolitical contestants to maximize their space for diplomatic maneuver.

The dramatic shift in US trade policy toward transactional tariff concessions and investment commitments has crucial implications for the resilience of Indo-Pacific economies. Tariffs, especially those applied broadly and under various sections of US trade law, increase the cost of Indo-Pacific exports to the United States. This reduces their competitiveness and impacts trade volumes. The cumulative effect of tariffs and trade policy uncertainty is expected to weigh on trade, investment, and economic growth. The unpredictability of US trade policy also deters foreign direct investment (FDI) into the region, as companies see the US market as increasingly unreliable. This approach also undermines confidence in multilateral institutions and encourages “prisoner’s dilemma” responses where individual countries pursue favorable deals rather than collective resistance.   Despite the uncertainty about its intentions and policies, there is a desire for the United States to continue to play a leading role in the global economic order.

With the weakening of the World Trade Organization (WTO, some experts anticipate a surge in regional arrangements to address this new global environment. Open plurilateralism – multilateral trade deals that are capable of growing to include new members – will be the new guiding principle. Leadership in this effort will have to come from middle and emerging powers. Governments that share a commitment to free, fair and open trade should work together to gird this system. While there will be greater attention to economic security, market principles will still play an important role.

In the Indo-Pacific, three such mechanisms discussed during the seminar include the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), the Regional Comprehensive Economic Partnership agreement (RCEP) and the Asia-Pacific Econonomic Cooperation (APEC).

CPTPP has the potential to serve as a rules-based bloc that addresses 21st-century trade issues like digital trade, state-owned enterprises, and supply chain resilience. Its potential lies in its ability to set high standards and provide a predictable and stable economic order, although it cannot fully replace the WTO.

RCEP could act as a stabilizing force against protectionism, fostering intra-regional integration, and creating a larger, more cohesive market. Its sheer size, covering about 30% of global GDP and population, gives it significant economic influence, though its rules are less comprehensive than some other agreements like CPTPP. Further, it has been underutilized by member states due to its complex rules of origin regulation, limited tariff and services liberalization, and lack of capacity building for weaker members.

APEC remains valuable as a forum for building consensus and developing capacity. Some analysts believe APEC’s Free Trade Area of the Asia-Pacific (FTAAP) work program can serve as a key element in addressing supply chain resiliency issues that were exposed during the Covid-19 pandemic.

This emerging regional trade environment makes greater ASEAN integration essential to ensure that national responses to these pressures do not create internal tension with the organization. However, ASEAN has been slow to respond as the organization has yet to internalize this new nexus of security and economic issues as it remains focused on avoiding embroilment in the strategic competition between China and the United States. Meanwhile, most ASEAN member states continue to pursue trade and investment with both countries.

Taiwan plays a vital role in this emerging economic order. Its role in semiconductor supply chains puts it at the epicenter of the new geostrategic challenge. While Taiwan has enjoyed close economic relations with China and has integrated the mainland into its supply chains, that relationship should not be mistaken for geopolitical ambivalence. Taiwanese investment in China peaked in 2011 and has steadily declined as labor costs have risen and political risks increased. In response, Taiwan is diversifying its investments, pursuing a “Southbound pivot” that takes it more deeply into Southeast Asia while investing in Northeast Asia and the United States as well. Success in this endeavor requires that governments be receptive to these investments. but the record thus far is mixed.

Strengthening supply chain resilience has become a strategic imperative in the current global trade environment. Coupled with experience during the Covid-19 pandemic, the expanded use of economic statecraft tools such as export controls, sanctions, and tariffs in the context of strategic competition has driven both countries and businesses to promote market diversification and to develop strategies to anticipate, prevent, adapt, and recover from disruptions. This is especially evident in trade competition between the United States and China. Washington appears to be moving away from “friend-shoring” to onshoring. Beijing is rapidly expanding trade and commercial ties in the Indo-Pacific with increased investments, particularly in the critical and advanced technology sectors. Other Asian states are caught in the middle.

There is some doubt about whether the US strategy will in fact bring about the rerouting – reshoring – of supply chains to the United States as intended. Some recommend the US pursue “nearshoring” instead, while others emphasize that the United States should work especially closely with allies and partners to build collective capacity and resilience.

While some analysts, especially in the United States and Taiwan, have advocated for a “non-red supply chain” to reduce reliance on the People’s Republic of China (PRC), others believe the United States needs to keep China in its supply chain as a temporary measure while it builds alternative production networks. Indeed, some analysts warn that even in the long-term decoupling may only be possible in certain strategic sectors and not more generally.

Critical minerals, which are essential to virtually all new and emerging technologies, are central to the modern global economy. There is no economic security without mineral security. As a result of China’s recurring denial or restriction of access to critical minerals through export restrictions, considerable energy and resources have been devoted to the development of alternative sources of critical minerals as well as new supply chains to process them. Indo-Pacific nations are central to this effort. There are initiatives such as the Minerals Security Partnership, as well as new attention to longstanding opportunities such as urban mining (recycling e-waste) and seabed mining. Those efforts are subject to considerable risk as markets are volatile, investment timelines are long, and government policies can shift. Governments can help by guaranteeing demand, helping provide investment capital and creating tax incentives for mining and processing. Japan has been a leader in this area.

International economic development assistance has been a fundamental component of economic statecraft since the colonial era. While there has always been some tension between the altruism of providing assistance and the exploitative potential associated with integrating impoverished societies into the global economic system, the general consensus is that this assistance has raised the standard of living of billions of people over the past decades.

Development approaches based on the notion of capacity-building were introduced to make up for perceived shortcomings in the development aid and technical assistance provided by major international donors based on the “Washington Consensus” development model. These included lack of ownership by recipients, the lack of capacity to ensure sustainable change, lack of inter-sectorial coordination, and the inability to adapt to local conditions. Although capacity-building is still widely used, a new term – “capacity development” – is believed to better express an approach that builds on existing skills and knowledge, driving a dynamic and flexible process of change that is implemented by local actors.

Development programs such as the Belt and Road Initiative BRI), the Global Gateway, and the Blue Dot Network are key components of any economic statecraft agenda. By promoting connectivity and development, they institutionalize integration and tie participants’ economic futures. Australia has demonstrated considerable creativity in its development efforts with South Pacific islands in recent years. Those efforts go beyond development assistance to include infrastructure development, along with the digital networks – hardware and software – that facilitate modernization more broadly.

China’s BRI has attracted considerable attention – good and bad – but it has been most notable for exposing the shortcomings of the existing international development framework. The BRI has evolved, however, in response to economic developments in China and complaints about how it has been implemented. To its credit, Beijing has adjusted its policies to respond to charges of debt burdens and modern imperialism.

With its abandonment of development institutions like the USAID, the US Institute of Peace, and pro-democracy outlets like Voice of America, the perception is that the United States has lost interest in development assistance and promoting soft power more generally. This withdrawal has also led to renewed questions about the efficacy of the liberal democratic values associated with the “Washington Consensus” development model.

Elements of the Washington Consensus model such as free trade and foreign investment are likely to remain essential to economic growth and development; however, regional mechanisms will likely play a much larger role in the future. More intra-regional trade and investment will lead to more complementarities and further regional capacity development. While promoting soft power through development will remain relevant, there is growing acknowledgement that self-interest makes the best case for development assistance.

The international financial system and economic security concerns are deeply interconnected. The international financial system is the worldwide framework of legal agreements, institutions, financial markets, and economic actions that facilitate the flow of financial capital for investment and trade across borders. While the system promotes economic security by fostering stability, growth, and cooperation, the rise of geopolitics and the use of economic tools for national security purposes are increasingly stressing the system, leading to a new focus on national economic resilience.

The US Dollar (USD) holds a unique and dominant position in the global financial system as the reserve currency. The basis for what is commonly referred to as the “exorbitant privilege” of the USD is its massive liquidity and overwhelming use in debt and commodity markets along with its dominant role as the reserve currency for central banks around the world.

The increasing readiness of the United States to use the USD’s central role in the global financial system to coerce other countries has led some governments to pursue alternative international payment settlement mechanisms. However, while decrying US power and influence, none have the capacity nor the desire to supplant it. Thus far, these alternative mechanisms are seen as a complement rather than a replacement to the USD system.

Some believe the rapid evolution of digital payment infrastructure presents a significant, though still nascent, challenge to the long-standing dominance of the USD in the global financial system. The Indian government’s United Payments Interface (UPI) is part of this effort. While it is still in its early stage, UPI is “a signature piece of the Indian international economic agenda” and its acceptance is growing in countries with a significant Indian diaspora. Indonesia’s QR system is a similar initiative. Launched by Indonesia’s central bank in 2019, QRIS leverages QR codes to enable digital payments. It has gained significant domestic traction. These systems along with Brazil’s Pix, China’s Cross-Border Interbank Payment System (CIPS), and Russia’s System for Transfer of Financial Messages (SPFS) serve as a potential basis for a BRICS pay system touted at the July 2025 BRICS Summit as a potential alternative that could eventually rival the dollar-dominated Society for Worldwide Interbank Financial Telecommunication (SWIFT) system.

The intersection of public and private interests in the emerging geo-economic security environment creates both powerful opportunities and significant challenges, especially for market-based economies. In recent years, there has been increased government interest in developing industrial policy to steer their economies toward specific goals, such as boosting competitiveness, ensuring supply chain resilience, and accelerating technological innovation.

Central to the success of these efforts is redrawing lines between the public and private sectors. There is a new consciousness in governments of the strategic importance of economic outcomes – across entirely new ranges of sectors and initiatives. Business is adopting this new mindset, but this process is slower. In this environment, information flows are critical, Governments must learn how to communicate threats and opportunities and ensure the alignment of public and private interests.

This document was prepared by Brad Glosserman and Carl Baker. For more information, please contact Brad at ([email protected]) or Carl at ([email protected]). These findings provide a general summary of the discussion, and it is not a consensus document. The views expressed do not necessarily reflect the views of all participants.