Southeast Asia has become a major centre of global manufacturing and investment, but trade between its own economies remains limited. Despite deep connections with supply chains linking Japan, China, the United States and Europe, the region has yet to develop an integrated internal market comparable with other major economic blocs.
Foreign direct investment into the Association of Southeast Asian Nations (ASEAN) reached approximately USD 244 billion in 2025, with manufacturing investment increasing sharply as multinational companies diversified their production networks. Singapore and Vietnam are among the world’s most open economies, while factories across the region serve international markets.
Intra-regional Trade Remains Limited
Trade between ASEAN member states accounts for only around 22% of the bloc’s total trade, according to MAT. Within the European Union, the corresponding share is approximately 61%, highlighting the gap between Southeast Asia’s integration into global commerce and its internal economic connectivity.
Several structural factors contribute to this imbalance. ASEAN comprises archipelagos with different legal systems, uneven infrastructure and substantial income disparities. Although tariffs have declined, businesses continue to face non-tariff barriers, customs delays, regulatory differences and limited integration of cross-border services.
These obstacles can increase costs even for companies operating within established regional production networks. Components incorporated into global supply chains may still encounter administrative and regulatory difficulties when transported between neighbouring ASEAN economies.
Removing Barriers Could Support Regional Growth
Reducing these obstacles could deliver significant economic benefits. MAT cites estimates suggesting that eliminating non-tariff barriers could increase ASEAN’s GDP by approximately 4.3% over the long term.
Deeper financial integration could also improve the allocation of regional savings by directing more capital towards productive businesses. Improvements in transport connectivity, digital regulations and mutual recognition arrangements could further strengthen cross-border supply chains. These measures are also relevant as US-China rivalry contributes to fragmentation in global trade. More efficient regional links could make ASEAN production networks more resilient to changes in international trade patterns.
ASEAN’s Integration Model Differs from the EU
The European Union’s single market offers an example of the economic benefits of deeper integration, but its institutional structure is not directly transferable to Southeast Asia. ASEAN has a lower level of political integration and no appetite for adopting the type of supranational authority associated with Brussels.
The bloc does not need to replicate the EU’s institutional model to improve its internal market. Its future growth could increasingly depend on enabling existing factories to purchase inputs, sell products, obtain financing and recruit workers across national borders, rather than relying primarily on attracting additional foreign manufacturing investment.
