Asia and the Pacific remained a central driver of global trade and investment in 2025, despite slowing momentum amid rising geopolitical and policy uncertainties. The Asia-Pacific Trade and Investment Briefs 2025/26, released by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), show that tariff anticipation and digital investment drove a temporary upswing in trade last year while firms also sought to rebalance and diversify.
Merchandise trade sees temporary uplift amid tariff anticipation
Global merchandise export volume grew by 2.8 per cent in 2025, fuelled by strong demand and front-loading of shipments ahead of anticipated tariff increases. Export shipments from Asia and the Pacific also increased, although regional growth slowed to 3.3 per cent, still outpacing the global average. However, falling prices and intensified competition limited financial gains.
Trade expansion was uneven across subregions. Electronics-led export growth was concentrated in East Asia and South-East Asia, while South and South-West Asia experienced a decline of around 2 per cent. Although intra‑regional trade remained a key anchor, supply chains increasingly prioritized risk diversification over cost efficiency, with firms accelerating reshoring and nearshoring toward the United States and the European Union alongside broadening supply chains locations.
Regional trade growth is projected to drop to around 0.6 per cent in 2026 due to rising geopolitical tensions and restrictive trade policies.
Digital services exports expand, traditional sectors slow down
Commercial services trade in Asia and the Pacific continued to outperform merchandise trade in 2025, although growth lagged behind the global recovery. Services exports rose by 5.4 per cent, reflecting weak sentiment in major economies such as Japan and China. Services firms are diversifying into South-East Asia and India as alternative hubs to mitigate supply chain vulnerabilities.
All subregions recorded export growth, led by East and North-East Asia at 7 per cent, while growth in the Pacific remained modest at around 1 per cent.
Modern services powered export gains, led by telecom, ICT and computer services (13 per cent), and business and financial services (11 per cent). Travel and transport posted solid gains but lost momentum. Construction services fell sharply by 11 per cent amid a real estate downturn.
Intra-regional services trade strengthened further, accounting for around 21 per cent of exports and driven by South-East Asian exports to East Asia. 2026 growth projections remain positive at 4.4 per cent for services exports, buoyed by digital services.
The world's hub for trade agreements
Asia and the Pacific accounted for 61 per cent of all active preferential trade agreements worldwide, with 258 agreements presented in the region. In 2025, 12 new agreements were signed, with continued expansion of Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), Regional Comprehensive Economic Partnership (RCEP) and ASEAN frameworks and growing engagement with partners in Europe and the Gulf Cooperation Council.
Sustainability and supply chain resilience provisions were included in 158 agreements. The region also continued to lead digital trade rule-making, participating in 12 of the world's 16 Digital Trade Agreements. Issue-based arrangements and mini-FTAs expanded further to support targeted cooperation and de-risking.
Looking ahead, ESCAP notes the need to harmonize fragmented rules and ensure inclusive participation for less developed economies, while strengthening regional cooperation mechanisms that reinforce the global rules‑based system.
FDI becomes more selective adjusting to new realities
Greenfield foreign direct investment announcements in terms of capital investment pledges in Asia and the Pacific fell by 21 per cent to $253 billion, but the number of project announcements reached near-record levels indicating capital intensity and scale are decreasing more than the general appetite for international operations in the region. South-East Asia remained the top destination at $74.4 billion.
India was the largest individual target economy at $50 billion, followed by Australia at $30 billion and Republic of Korea at $25 billion. The Republic of Korea saw the largest surge with a 303 per cent increase in investment commitments. Services accounted for more than 60 per cent of FDI projects, led by ICT and renewable energy. Manufacturing investment shifted toward metals in part driven by demand for renewable power and advanced technologies, while the primary sector continued to decline. Market proximity motivated 52 per cent of project announcements, and FDI trends also show a shift from low-cost efficiency to 'innovation-seeking'.
