The rise of geoeconomics: a more challenging path to development

For decades, the answer seemed a matter of getting the policies right, and development thinking often looked to Asia for the template. But while Asia has shown remarkable resilience in the face of trade uncertainty and geopolitical risk, the terms of that question have shifted. Geoeconomics is changing not only how fast countries can develop, but whether the paths that once led upwards remain open at all.

What geoeconomics changes

Geoeconomics describes the growing use of trade policies, economic and financial instruments, investment regulations and export controls to pursue strategic ends, geopolitical and economic. Three core trends mark the unfolding geoeconomic turn.

First, industrial policy, including financial and technological instruments, is in the ascendant. As competition is increasingly defined by states wielding economic statecraft rather than by firms in open markets, the logic that governed the previous phase of globalisation—efficiency-driven market integration—no longer holds in the same way.

Second, value creation is moving into strategic sectors, such as semiconductors, AI and clean-energy technology, where the barriers to entry are high and rising. Advanced economies capture about 70% of greenfield FDI into these sectors. The single domain in which the developing world leads, at 59%, is critical minerals: the raw inputs, rather than the high-value processing that follows. Africa, for instance, mines most of the world's cobalt, yet retains just under 1% of the value in the green supply chains it feeds. Value capture, in other words, does not follow production.

Third, and crucially, the geography of trade is shifting, without a general retreat from integration. Since 2024, trade between China and the United States has fallen by around a fifth. As China’s imports from the United States and Europe have weakened, its links with the rest of East Asia have expanded, with companies diversifying sourcing while still relying on China-centred inputs, making East Asia one of the main beneficiaries of the geoeconomic shift.

Asia's resilience

Asia’s resilience extends beyond trade. Over recent decades, the region’s share of global growth has climbed, against a declining European trend and a static American one. In 2026, Asia will contribute around 60% of global growth, even as the world economy slows. The fastest-expanding economies in the world in 2026 are mainly in the Asian region and include India (7.3%), China (4.5%), Indonesia (5.2%), Vietnam (7.8%), Mongolia (7%), Uzbekistan (7.9%) and Kyrgyzstan (8.8%), among others.

This resilience reflects the size of the region’s economies, but also how deftly it has adapted to the new environment. Asia has kept the networks of co-operation working where much of the world has let them stall. Intra-APEC (Asia-Pacific Economic Co-operation) trade and investment have expanded faster than the global average for two decades, and the region’s flexible style of co-operation has quietly delivered: average tariffs across its members fell from 14% in 1994 to 5% in 2019. When APEC trade ministers met in Suzhou earlier in 2026, they forged an agreement at a moment when consensus elsewhere was scarce. The capacity to keep co-operating is itself a form of resilience.

What set the successes apart, in South Korea a generation ago and Malaysia, Indonesia, Thailand and Vietnam more recently, was less a transferable strategy than a rare alignment of scale, timing and accumulated capacity, sustained by long investment in the most contested sectors. Such conditions are not widely shared, and the target is moving: as value creation shifts towards ever more technology- and infrastructure-intensive activities, the capabilities needed to catch up become more demanding. The geoeconomic era favours those already equipped for it. On GDP per capita, no other developing economies have matched the convergence of China, India, Indonesia, Malaysia, Singapore and Vietnam: for the vast majority of them, convergence in per capita GDP has receded since the mid-2010s.

The limits of the model

Yet even successful integration can reach a structural ceiling. Malaysia, having spent decades deepening its place in electronics value chains through targeted industrial policy and careful planning, illustrates the limit: the obstacle to advancing further is no longer simply one of building domestic capability, but a global production structure in which the highest-value nodes remain concentrated among established firms well placed to retain them. A similar enclosure is emerging in services trade, where the fragmentation of digital-trade rules, following the lapse of the long-standing moratorium on customs duties on electronic transmissions, is raising compliance costs that fall hardest on developing-country suppliers.

Nor is the Asian position as settled as its growth figures imply. The AI boom now lifting the region’s exporters carries the marks of earlier financial bubbles, and its risks are unusually concentrated: an estimated 85% of listed firms on Taiwan’s main index carry earnings exposure to it, so a correction in a single sector would ripple across the region and beyond. In China, meanwhile, the shift to household consumption is still nascent, leaving growth reliant on investment and external demand that geoeconomic tensions could disrupt. Asia has managed these pressures well, but its prospects still depend on the very sectors at the centre of the tensions that make further progress difficult.

Keeping the door open

The deeper lesson goes beyond the region. The terms of development have changed, in a direction that concentrates advantage. Where integration once offered a broad path upwards, geoeconomics allocates access strategically, rewarding capability already built and scale already assembled.

Co-ordinated strategy, patient investment and co-operation among developing countries therefore matter more, not less. Regional co-operation can help countries pool markets, investment and productive capabilities, creating the scale needed to move into activities that increasingly lie beyond the reach of any economy acting alone. The deepening specialisation of global production and the greater weight of sectoral policies open new opportunities for integration.

But global uncertainties persist. The multilateral institutions that once held the system together are seeing their role diminish, and as regional powers gain weight, the new platforms of co-operation must balance the risks of fragmentation. That is the harder world the Report describes. The task for policy—national, regional and multilateral alike—is to keep the possibility of advancement open, so that it reaches more than the economies that have already arrived.

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