How Asian markets will respond to changes in demand and trade

With 2025 looking to be another volatile year, Asia’s reaction to anticipated changes in global demand will be in the spotlight. Given the persistence of – and likely increase in – trade tensions, companies will need new customers, new trade partners, new technologies, and new capital channels.

It remains to be seen how disruptive new export barriers prove to be. But clearly, European and North American export markets that have reliably absorbed Asia’s production in the past are less willing and able to do so. Asian supply chains are shifting, not only in reaction to tariffs but also to seek new markets among their neighbours; a trend that will accelerate.

Fortunately, the region contains three of the top five global GDP engines (China, Japan, and India). Just as importantly, roughly 70% of global intellectual property filings now come from Asian offices. This has coincided with the rise of Asian market leaders in telecommunications, logistics, clean energy, fintech, and new materials, to name a few.

Massive pools of investible capital residing in China, Japan, Korea, and the Gulf States have facilitated this development, deployed via vibrant international finance hubs in centres like Tokyo, Singapore, Dubai, and Hong Kong.

In the meantime, multilateral trade pacts are deepening connections. The Regional Comprehensive Economic Partnership is the world’s largest trade bloc, encompassing some $30 trillion of GDP. The pact could add $209 billion annually to world incomes and $500 billion to world trade by 2030, according to a simulation by the Brookings Institution. There will likely be additional boosts from bilateral free trade agreements that are under negotiation. Nearly 60% of Asia’s trade is now conducted with regional trade partners, up from 53% in 2000. We project that intra-regional trade will continue to rise 65%, or $400 billion per year by 2030.

Local officials are collaborating to upgrade institutions to navigate complex issues like cross-border data sharing. Asia’s revolution in digital services – from government to back-office to finance – will further boost productivity.

Yet, the challenges are serious. To drive investment in infrastructure and export manufacturing capacity, many Asian countries have tended to maintain lower household consumption rates compared with the shopping- and services-centric models found in much of the developed world. In East Asia, for example, the average national savings rate is equivalent to 38% of GDP, 14 percentage points higher than the high-income country average.

This strategy has incubated a stable of vigorous “Asian Tiger” economies, inspiring imitators. But changes in attitude to free trade in the US and elsewhere will likely make this strategy more difficult for poor countries to implement going forward. For established export champions, this means rerouting export earnings into programmes that build the spending power of their citizens.

Leaders in Asia are moving to boost incomes to spread more wealth among middle-class consumers, while continuing to invest in necessary infrastructure, public services, and clean energy. That does not mean ignoring their comparative trade advantages, but the resulting impact on the structure of the global economy could be significant.

At present, Asians only contribute 27% of global aggregate consumer spending. But as incomes rise and social services improve, the middle class will start reallocating savings into spending on goods and services. Suppliers around the world will have to adjust.

Reducing Asian dependence on non-Asian export markets will not entail a reduction in aggregate trade – much the opposite. But the impact will shift demand across product and service categories. We are already seeing a boom in trade in digital services in Asia, for example, while commodities used for electrification and digitization will remain in high demand. Wealthier Asian consumers may purchase more meat and fruit, and more travel services. They almost certainly will use more energy, which is why it is so critical to keep investing in clean power. Other products and commodities that have been over-stimulated by excessive investment may cool.

Better-balanced Asian trade partners will ultimately engage more with developed economies, as well as each other. The result will be an even more dynamic, innovative Asia that supports more sustainable global growth.