What 2026 holds for Asean on the US-China fault line

AT A time of growing geopolitical and economic disorder, South-east Asia faces a pivotal year. Three-and-a-half decades after the collapse of the Soviet Union, the post-Cold War vision of a stable, liberal global world order has been thoroughly tested and replaced by a complex reality.

The biggest game changer in global affairs since then is the rise of China as a nascent superpower, and the resulting rivalry with the US has made Asean the central stage for economic and political competition.

China’s rise and Asean

Beijing has now surpassed Washington as the world’s largest economy by purchasing power parity, and only last week became the first nation to report an astonishing trade surplus of more than US$1 trillion.

Morgan Stanley recently forecast that by 2030, China’s market share in global exports could reach 16.5 per cent, up from around 15 per cent now, driven by advanced manufacturing and high-growth segments such as robotics, electric vehicles and batteries.

Inevitably, the rise of China is therefore having a massive influence on geoeconomics and wider international relations, including in Asean.

This growing reliance on exports, however, has risks. As International Monetary Fund managing director Kristalina Georgieva noted on Dec 10, the heavy Chinese reliance on exports risks countermoves by its trading partners to curb imports.

Georgieva said that “China is now too big to rely on exports as a source for growth... and it has a large domestic market that can be a big aspiration for growth in the years to come”.

This issue was discussed by Chinese leaders in October at the so-called fourth plenum, ahead of the development of the nation’s next five-year plan. Key goals include rebalancing the economy away from heavy dependence not only on exports, but also on infrastructure investment.

China’s intensified export focus on Asean is not a new development, despite recent claims of an export shock hitting the region in 2025. The recently released new US National Security Strategy, which lists South-east Asia only twice in its 32 pages, refers to the region as a market for China’s “enormous excess capacity”.

However, Beijing’s focus on the region accelerated much earlier than 2025. This was after the trade tensions of US President Donald Trump’s first term between 2017 and 2021.

While these increased Chinese economic flows have created many jobs and helped Asean’s integration into global supply chains, they have also been disruptive.

Think tank K-Research in Thailand noted that more than 100 factories in that nation, mainly small and medium-sized enterprises, closed every month from 2021 to 2024. These factories were mostly manufacturing electronics, garments, automotive and steel – all sectors that have encountered competition from inexpensive Chinese goods.

Geopolitical fault lines: the US-China relationship

This highlights how China’s rise has mixed implications, economically and politically, regionally and globally. At the macro level, for instance, it still has the potential to be both a growing source of tension with the US, as now, or it just possibly might yet develop into a more fruitful partnership, as many policymakers still hope.

Growing bilateral rivalry is especially likely if Beijing’s economic and military power continues to grow rapidly, and the country embraces an increasingly assertive foreign policy stance, including towards its neighbours in Asia.

However, there remains an outside chance of a more cooperative G2 relationship building, as there has been during previous US presidencies around softer issues like climate change.

It is this uncertainty over the pathway of US-China relations on which much of international affairs hinges in 2026 – and well beyond. The huge complexity of managing global economic and political affairs today may increasingly depend upon major state cooperation with others, both competitors and allies, and ties between Beijing and Washington will be central to this.

Many optimists now recognise that the early post-Cold War vision – a universal order of liberal, capitalist, democratic states living in peace – has not materialised, despite positive developments in recent decades.

Important events of that period included the 1990 reunification of Germany and the Baltic states declaring independence from the Soviet Union. That year also marked Iraq’s invasion of Kuwait, which began the crisis that would lead to the Gulf War in 1991.

It was then that incumbent US president, George Bush, proclaimed a “new world order”. This was based on checking the offensive use of force, promoting collective security and using great power cooperation – a vision at odds with the unilateralism and protectionism of Trump’s administration.

In late 2025, many of the key gains of the post-Cold War era are being tested. This includes the future security of Asia and Europe, the advance of democratic government, and growing inequality.

It is a world where there is growing concern over the future of globalisation, which has long characterised much economic policy orthodoxy.

Reasons for optimism

Yet, while 2026 will be another year of high political tension, the current international landscape also contains cause for optimism. Advances in technology, healthcare and wider human access to knowledge may yet drive a new wave of post-pandemic global progress.

Moreover, the contemporary global environment also contains multiple opportunities for potentially greater stability that could underpin international order and globalisation.

While big multilateral economic deals are becoming harder to secure, Dec 20 could see the formal signing of the trade agreement between the EU and Mercosur – which includes Brazil, Argentina, Uruguay and Paraguay – to create a combined market of some 800 million people.

This builds from other big agreements of the era, including the agreement by 11 Americas and Asia-Pacific nations of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which account for 13 per cent of global trade.

The bloc also consists of multiple Asean states, including Singapore. It is the third-largest trade bloc – which the UK has also now joined – after the North American Free Trade Agreement and EU.

This economic multilateralism is further underpinned by a dense web of post-war international institutions, notably the United Nations – which turned 80 in 2025 – that maintain significant resilience and legitimacy decades after their creation.

While these bodies are in need of reform, they have generally enabled international stability and diplomacy – especially with five key powers on the UN Security Council.

Taken together, the world is therefore facing a sea of opportunity, and not only challenges. Asean sits at the fault lines of much of this changing economic and political landscape, and will have a front-row seat of what may prove a bumpy 2026 ahead.

The writer is an associate at LSE IDEAS at the London School of Economics