By David Abonyi and George Abonyi, August 13, 2025
This is the second article in two-part series about the return of geoeconomics. Part one looked at United States President Donald Trump’s strategy as the most extensive example of this return.
A condensed version of parts of this article was published in The Hill Times on March 26, 2025.
The return of geoeconomics has been a key factor reshaping the global system, with the Trump strategy presenting a singular challenge to rewire the global economic, financial, political, and security architecture.
In this context, Canada is facing an uncertain, volatile, and complex global environment compounded by internal economic weaknesses accumulated over time. It requires rethinking Canada’s economic strategy to strengthen national competitiveness in turbulent times.
Canada’s domestic economic challenges are well known. Options for addressing them have received considerable attention – if limited effective action – to date. There are a number of comprehensive analyses and recommendations by, among others, the C.D. Howe Institute, RBC Economics and Financial Times. There are also assessments and recommendations with respect to specific issues, for example by the Macdonald-Laurier Institute on interprovincial trade barriers, capital investment, and tax reform; and a thorough Parliamentary analysis of the innovation and productivity challenges.
While the United States will continue to be the dominant, critical economic and security relationship for Canada, rethinking Canada’s economic strategy should include focused and pragmatic trade and investment diversification. In this, an evolving Indo-Pacific region can play an important role.
Why the Indo-Pacific region
The late Japanese prime minister Abe Shinzo introduced the term “Indo-Pacific.” He sought to broaden the Asia-Pacific concept by linking the Indian and Pacific Ocean areas. The region comprises a wide range of economies varying in size, level of development, and economic structure. Examples include the large economies of China, Japan, and India; the medium-sized economies of Indonesia, Malaysia, Thailand, and now Vietnam; and the smaller economies of Cambodia and Laos.
The Indo-Pacific has consistently been the fastest growing economic region in the world. The International Monetary Fund (IMF) projects Emerging and Developing Asia – which includes China and India – to grow at 5.1 per cent in 2025, and 4.7 per cent in 2026. This outpaces global growth projected at 3.0 per cent and 3.1 for this year and next, respectively. It’s also more than double the pace of advanced economies – including the US, Europe, and Japan – projected at 1.5 per cent and 1.6 per cent over those two years. Asia accounts for more than half of global trade, middle class households, manufacturing value added, and GDP growth. Countries of the region are expected to generate 60 per cent of global growth in 2025.
Canada has long recognized the region’s opportunities and has made efforts, in the past and more recently, to act on this potential. The Indo-Pacific Strategy (IPS) was unveiled in November 2022. It details the region’s global importance, as reflected in the combined GDPs of its economies, market size, and trade and investment. The IPS approaches the Indo-Pacific region as a strategic arena for comprehensive foreign policy, including economics. This includes strengthening bilateral interactions with India and Japan, and navigating a difficult balancing of the role of China. The Association of Southeast Asian Nations (ASEAN) occupies a central role in the region, and in the IPS, given its strategic location and position as major hub for global manufacturing and trade. The economic objectives of the IPS include support for sustainable infrastructure and resilient supply chains, both also important regional priorities.
The changing Indo-Pacific region
The global and regional economic environments have been changing considerably since the inception of the IPS in 2022. They are characterized by turbulence, involving instability and complexity caused by rapid, interconnected, and far-reaching changes in diverse areas – including geoeconomics and technology. As a result, governments and enterprises confront continuing uncertainty and risks.
Like China, Indo-Pacific economies face high US tariffs. These measures are largely aimed at Chinese firms that have been using third-party exports from countries such as India, Vietnam, and Thailand to circumvent US tariffs. Notwithstanding, they greatly impact the region’s firms and the strategy of export-led growth.
In addition to US tariffs, Indo-Pacific economies are facing potential diversion of Chinese exports from the now constrained American market. This is the result of China’s continuing excess production and low domestic consumption, which has led to record exports, particularly to the US.
The region has felt the blowback of earlier American tariffs on China, leading to China’s growing trade surplus with ASEAN. Although Chinese investment increased, it also reduced local production resulting in plant closures, such as textile mills in Indonesia and plastics and integrated circuits in Thailand. It is estimated that as much as US$560 billion of China’s annual exports will now need to find new markets.
The delicate challenge in the region is to balance the relationship with China, a critical source of imports and investment, with the U.S., the essential end-market for exports.
The Indo-Pacific region, like Canada, must adjust to a new reality. The IMF and the ASEAN+3 Macroeconomic Research Office (AMRO) stress that deepening economic cooperation, expanding domestic demand, and diversification of export markets will be important to mitigate the impact of global turbulence. There is significant scope for expanding intra-regional trade, and greater integration in production, trade, and finance. Already, regional value chains have increased their reliance on intra-regional sourcing and are increasingly producing for the region’s markets, where household consumption, particularly in ASEAN and India, is expected to continue to increase. A more integrated regional economy is also likely to be more attractive for investment, including by large global enterprises.
The key role of technology sectors, including AI, driving the region’s growth in production and exports is now evident in trade data. Faced with continuing turbulence in the global economy, investing in technological innovation, digital transformation, and advanced manufacturing is essential. This can be supported by deepening regional economic integration, and diversifying collaboration with external partners.
The region is already making significant gains in digitalization. For example, the ASEAN Digital Economy Framework Agreement (DEFA), aimed at deepening digital integration, is the world’s first such legally binding accord. It is estimated that it will double ASEAN’s digital economy to US$2 trillion by 2030. This is for an ASEAN that is already the world’s third-largest digital services exporter after the United States and United Kingdom, with particularly strong intra-regional digital services trade. For Canada, it is important to note that most ASEAN digital services exporters are also significant importers of digital products and services.
Two overlapping plurilateral free trade frameworks are especially important for the participating Indo-Pacific countries to strengthen economic connectivity and deepen cooperation in investment and trade of goods and services. The Regional Comprehensive Economic Partnership (RCEP), a 15-country free trade agreement centred on ASEAN, can deepen economic cooperation in goods, services, and the digital economy. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), of which Canada is a member, is currently under review in order to bolster regional economic linkages.
Where to for Canada’s Indo-Pacific economic strategy?
In the face of global headwinds, a more integrated Indo-Pacific will create a larger diverse regional market. It will be increasingly driven by household consumption, including beyond its leading cities; more extensive regional production value chains; and the need for technology upgrading, particularly digital services and AI. These developments will present significant new opportunities for collaboration with Canada.
The aim here is not to suggest comprehensive revisions to the Indo-Pacific Strategy. The more modest objective is to provide examples of initiatives that build on the likely evolution of the region, align with Canada’s interests, and could complement the IPS. The suggested initiatives involve the cross-cutting theme of regional focus, coupled with region-oriented country-based collaborations.
Two suggested initiatives involve partnering with countries with significant regional roles. Japan is a key source of region-wide finance, with regional strategies in priority areas of the IPS. Thailand is a central participant in several subregional and regional economic cooperation programs, which could provide the basis for a diversified regional presence for Canada.
Two additional suggestions provide a different practical perspective on the region, aligned with expected developments. One focuses on digitalization in the context of start-up ecosystems. These are playing a key role in the transformation of the region’s economies. Canada is well positioned to be an effective partner for mutual benefit, including in scaling up both Indo-Pacific and Canadian start-ups. Expanding domestic demand in the region, particularly outside leading cities, provides the basis for the appropriate innovation approach. This can be the basis for collaboration to build capacity for business and social innovation and strengthen Canada’s profile in the region.
Japan
Japan can be an important regional collaborator for Canada. It plays a vital role in the Indo-Pacific, especially in Southeast Asia, where it is seen as the “most trusted partner,” and also increasingly in South Asia. Its focus on strengthening cross-border connectivity includes investment in high-quality infrastructure and resilient regional supply chains. These reflect the transformation of Japan’s economy. This includes regionalization of its industries, particularly in ASEAN. Japanese firms have also repositioned as critical suppliers in global and regional value chains of higher value-added and higher technology materials such as fine chemicals, instead of lower value-added visible consumer end products such as LCD panels.
Japan has long been the largest bilateral source of infrastructure finance in Southeast Asia, worth around US$330 billion in 2022, compared with China’s approximately US$100 billion. The Partnership for Quality Infrastructure, initiated in 2015, followed in 2020 by the Japan–ASEAN Connectivity Initiative, strengthens connectivity within ASEAN and with the wider region. Japan’s expanding regional strategy in South Asia is reflected in The Bay of Bengal Industrial Growth Belt (Big-B), with Bangladesh in a central role linking South and Southeast Asia. Overall, its priorities align well with Canada’s IPS, providing significant opportunities for a new type of region-wide partnership.
A framework agreement for regional cooperation could provide the basis for focused collaboration of Canadian and Japanese firms in the Indo-Pacific. It could also strengthen government cooperation in trade, investment, and development finance aimed at third markets.
Thailand
The second largest economy in Southeast Asia, Thailand can also be an important gateway to the region. It has a diversified business sector, regionally leading enterprises, and generally efficient and well-regarded institutions. Multiple countries can serve as complementary gateways, depending on their relative advantages aligned with Canada’s interests. For example, Indonesia, the largest economy in Southeast Asia, has significant infrastructure needs and priorities, and recently concluded a Comprehensive Economic Partnership Agreement (CEPA) with Canada. Vietnam plays a key role in lower-labour cost manufacturing, and Singapore has a central regional role in areas such as finance and IT.
Thailand links Southeast, East, and South Asia through its central role in sub-regional cooperation programs. These include the Greater Mekong Subregion (GMS), with Cambodia, China, Laos, Myanmar, and Vietnam, and the Indonesia-Malaysia-Thailand Growth Triangle. It links to South Asia through the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC), which includes Bangladesh, Bhutan, India, Myanmar, Nepal, and Sri Lanka. Thailand’s priority Eastern Economic Corridor (EEC) focuses on advanced infrastructure and innovation to strengthen it as a base for regional business operations. It is also a participant in RCEP, the world’s largest free trade agreement anchored in Asia. Japan and Thailand also play an important role in linking Southeast and South Asia, with significant economic potential, as outlined by the World Bank.
Like with Japan, a Canada-Thailand regional economic cooperation framework agreement could strengthen economic and business collaboration, including in diverse subregional and regional programs.
Start-up ecosystems
Start-up ecosystems can provide a novel initiative for diversifying economic linkages, well aligned with emerging opportunities in the region, particularly related to digital services. Canada’s start-up ecosystem is ranked fifth globally, with a priority on an “innovation economy” with global ambitions. An example of new opportunities in the Indo-Pacific region are the rapidly expanding and diversifying ecosystems of ASEAN. According to the United Nations Centre for Trade and Development (UNCTAD), from 2015 to 2021 the number of ASEAN start-ups that raised more than US$1 million in funding almost tripled, increasing from 652 to 1,920. This is much faster growth than Europe (85 per cent increase) and the U.S. (65 per cent) during the same period, and future potential looks strong.
Linking start-up ecosystems can complement Canada’s usual approaches to Asian markets. It would also provide for engaging, innovative small- and medium-scale enterprises (SMEs). Many Southeast Asian start-ups from the outset look beyond their home markets, providing new opportunities for Canada’s regional presence. This is facilitated by expansion of digital trade in the region. To support this, the introduction in 2023 of the ASEAN Digital Economy Framework Agreement (DEFA) is aimed at reducing regulatory barriers and streamlining cross-border digital trade. It provides strong support for regionalization and growth or scaling of start-ups. For example, it will enable a Thai start-up and a Canadian partner to more easily sell products and services to consumers in Indonesia and Vietnam and forge regional partnerships.
Support for collaboration can involve not only the region’s start-ups, but also a growing variety of incubators, accelerators and financing mechanisms. Partnering with local start-ups can also allow accessing a wide range of government initiatives for attracting foreign partners for the region’s start-ups.
Appropriate innovation
“Appropriate innovation” presents a creative approach for product-market strategy in the Indo-Pacific region, aligned with the focus on expanding domestic demand. While people of this region have high aspirations, most will be lower income for years to come, but with significant buying power. Growth in spending in Southeast Asia, India, and China will be largely driven by lower-middle-income and lower-income households. They constitute a huge “second tier” underserved market, much of it in smaller cities, towns, and rural areas. Effective innovation for this market requires a shift in perspective on innovation.
The appropriate innovation approach is aimed at addressing the unmet needs and constraints of consumers in this vast market. It can help diversify products and markets for Canadian firms and support local development. This approach starts from a deep, granular understanding of specific “second tier” market segments through extensive consumer engagement, as well as knowledge of existing local technologies and business constraints. The focus of innovation is then on addressing local consumer needs, tastes, and demands, while reflecting realities of local conditions and constraints. This can be supported by digital technology such as 3D printing for rapid product development.
Policy initiatives to support this can include broadening research and development funding from laboratories to markets, establishing networks of SME resource centers that combine technology and market-related supports, and expanding support for alliances of Canadian firms with market-oriented social enterprises in the region.
Conclusion: Beyond economics
Canada and the Indo-Pacific region are faced with a turbulent world. With the return of geoeconomics, now driven by the Trump strategy reshaping the global system, even the near future is uncertain. Canada and the region are both looking to diversify their external economic linkages to address risks and emerging opportunities. The Indo-Pacific region is expected to deepen economic and market integration and expand domestic demand, upgrade technology, providing even greater possibilities for Canadian engagement.
Economic performance is a fundamental priority of Indo-Pacific countries, especially the emerging economies of Southeast and South Asia. Creative initiatives that respond to a changing region therefore will serve not only Canada’s and the region’s economic interests but can be essential elements of a more comprehensive Canadian foreign policy writ large.
David Abonyi is director of the project “Strengthening Thai-Canada Business Linkages,” originally an initiative of the Thailand Economic Cooperation Foundation in Bangkok.
George Abonyi, resident of Ottawa, is senior research fellow and visiting professor at the Sasin School of Management of Chulalongkorn University and senior adviser to the Fiscal Policy Research Institute, affiliated with the Ministry of Finance, Royal Thai Government.
