ASEAN’s Trade and Investment in a Fragmented World

This paper examines the short- and medium-term effects of the 2018–19 China-U.S. tariff increases on the trade and investment flows of ASEAN member economies. Using granular trade data, we demonstrate that several ASEAN countries experienced a disproportionate growth in exports of products that were targeted by these tariffs. To further explore the dynamic and often immediate responses of international capital flows to these trade policy shifts, we leverage a novel firm-level FDI database that allows us to identify surges in sectoral investment inflows. Among ASEAN countries, Vietnam stands out as the one where FDI in targeted sectors grew notably faster during 2018–19, likely contributing to its observed export gains over the medium term. At the same time, our analysis reveals that trade gains in targeted products have not universally translated into stronger overall export performance across ASEAN. More generally, while trade reallocation may yield short- and medium-term gains, these gains can be offset over time by the higher long-term aggregate losses associated with trade fragmentation.