Asia’s growing global importance no longer surprises anyone in the planning staffs of foreign ministries and strategy departments of European companies. The facts speak for themselves and are well known: The huge region generates more than half of global GDP growth, has built up over 50 percent of global manufacturing capacity, and handles over 50 percent of world trade. The majority of the new, ambitious global middle class that has emerged there is becoming the driving force behind a new phase of globalization, and the countries of the region are turning into key players on the world stage.
With new administrations about to be formed in Brussels and Washington and the election campaign getting underway in Germany, structural patterns of a tectonic global reordering are taking shape in the Indo-Pacific—reaching far beyond economic ties—which European policymakers should be paying much more attention to: Europe's history is being written on the battlefield in Ukraine, but the future of Europe’s and Germany’s global clout will be determined in Asia and with Asian partners.
New Geo-economic Realities
The first layer of this tectonic shift shaping the global power structure from Asia is the intense economic integration within the region. Despite geopolitical tensions, production networks, and trade and investment relationships are growing rapidly. China and the ASEAN group of states are not only each other's most important trading partners. In China's neighborhood—from Vietnam to Malaysia, from Thailand to Indonesia—the industrial zones are densely packed with Chinese factories. They now account for more than a third of “greenfield investments” to build up manufacturing capacities in the region.
These China-centric networks play a central role regionally and globally in renewable energy, electronics, and semiconductors, as well as in the development and processing of critical minerals. The expansion of Chinese car manufacturers—with more than 75 percent of electric cars sold in the region—is a sign of China's growing market dominance and the imbalances that come with it. It also seems likely in the medium term that Chinese providers will be dominant in the majority of Asian countries in conventional and modern connectivity infrastructure, from road, high-speed rail, energy, and telecommunications networks to new e-commerce platforms.
China’s drive to establish itself as the center of the regional economic order is not going unchallenged. The region’s developed countries in particular have long been pursuing a policy that Europe has been branding as “de-risking” since last year. Japan, South Korea, and Australia introduced diversification strategies for critical primary products and markets early on; Chinese technology was quickly excluded from the development of 5G infrastructure for security reasons. India has also set clear limits for the market penetration of Chinese products and services for both development policy and geopolitical reasons. Nevertheless, overall—and compared to Europe—these economies are dramatically more intertwined with China.
It is important to be aware of this when members of the Organisation for Economic Co-operation and Development (OECD) set their sights on China's neighborhood as part of their diversification efforts. Multinational companies that try to reduce their dependencies on the Chinese market with “Beyond China” or “China+1” strategies often end up with suppliers that are themselves closely linked to China or even Chinese-owned. This then only leads to a limited systemic reduction in dependencies on Chinese primary products. Nevertheless, “connecting economies” such as Vietnam benefit from the diversification trend, which is intended to achieve compatibility with China while also establishing a degree of distance. India too, though self-confident and much courted, is still at the start of a long race to catch up and faces tough competition for attractive investment conditions. For the time being, India won’t be able to reduce China's structural weighting as the region’s manufacturing superpower.
What is still being underestimated is the degree to which states in the region have become the driving forces for multi-layered cross-regional interdependencies and corridors. Although the political noise surrounding the Belt and Road Initiative has died down somewhat and resources are becoming scarcer, China's sweeping regional strategy remains a major factor for integration in the Indo-Pacific. It is entirely conceivable that the next great global upheaval will occur at the nexus of energy policy and the global financial system between China, the Indo-Pacific states, and the countries of the Middle East.
This new geography of economic interdependence poses immense challenges for Germany and Europe. The pressure from Chinese competitors is already enormous and will continue to increase because China's economic weakness and overcapacity are forcing companies to expand into external markets. In Germany, machine and plant manufacturers in particular are feeling the effects of this on a massive scale. It won’t be easy to rebuild industrial clusters with primarily European technology - in what would emulate China’s success story.
At a political level, strategies of the European free trade agenda that were long considered untouchable are being called into question: From regulations on forest protection in Indonesia to compliance with high standards for worker health and safety and supply chain ethics as well as the demand for comprehensive opening and liberalization processes in China or India—to remain competitive, Europe must align its trade agenda with the new realities.
New partners are needed in the region, particularly in technology cooperation and safeguarding the supply of raw materials. The ambition to build sustainable and secure supply chains to OECD standards that offer real alternatives to China has so far largely remained political wishful thinking. Although the Trade and Technology Council between the European Union and China and high-level government consultations have sent the right political signals, there has so far been a lack of determined collaboration between companies and policymakers when it comes to implementation.
For example, while it is right to re-initiate cooperation on skilled workers with countries in the region such as Vietnam and India, there is ultimately a much bigger issue at stake: How can a completely new network of talent and ideas, of cooperation in research and development, in green and digital technologies, but also of civil society dialogue be created that reaches far beyond individual investment and cooperation projects?
Fault Lines for Conflicts Among the Major Powers
The challenges for Europe increase many times over when we look at the harsh geopolitical realities in the region. The fault lines for conflicts with a mounting risk potential are evident and, in the worst case, they are harbingers of global turbulence. From the tensions in the South China Sea, currently between the Philippines and China in particular, to the escalation of the situation in the Taiwan Strait, from the expansion of North Korea's unholy alliance with Russia to the simmering border conflict between India and China—everywhere a picture emerges of looming crises that contradicts the vision of a peaceful, economically integrated Asia.
The entire potential for a global escalation of military, political, technological, and economic conflicts is concentrated in Taiwan. With its chip industry, Taiwan is a neuralgic player in the global digital industry, and with its geographical location, the island flanks one of the world's most important trade routes. Beijing is underpinning its ambition to change the status quo and bring Taiwan fully under its control through a massive military build-up with all the signs of concrete preparations for war. America’s status of military supremacy and its role in the Pacific region will stand or fall with Taiwan.
China's essentially imperial expansion strategy is therefore the central driving force behind far-reaching spiral dynamics. While Beijing sees itself encircled by new “containment” efforts and the Chinese leadership is subject to paranoid fears of being curtailed and undermined, China's actions are giving the governments in Tokyo and Canberra cause to unleash their own security scenarios which now extend to the nuclear armament of Japan and South Korea, for example—in the hope that this could help to contain further conflicts.
In Washington, the renewal and expansion of the US-centered security policy architecture in the region, however rudimentary it may be, has been pursued with great enthusiasm across party lines by the most recent US administrations. The expansion of the Quad format with India, Japan, and Australia, the Anglo-Saxon AUKUS alliance between Australia, the United Kingdom, and the United States, the “forward-basing” strategy in the Philippines and elsewhere, the security upgrading of trilateral cooperation between South Korea, Japan, and the United States—all these developments point in one direction: Washington is doing everything it can to assert itself in strategic competition across all domains and to be prepared for a military confrontation with China. In response, China is comprehensively hardening its own system, radically focusing on the possibility of a hot conflict with the US, and increasing investment in an authoritarian axis which, while remaining fragile, is building up a bulwark of decidedly anti-American, anti-Western, and illiberal power bases from Moscow to Tehran to Pyongyang.
What are the consequences of this new risk environment and of the exacerbation of the US-Chinese power confrontation in the region? Regardless of which US government comes to power next, the “burden-shifting” pressure from Washington—especially on Germany—will increase significantly. To build up a sufficient deterrent against China, the US will withdraw resources and attention from Europe. The only question is the speed and the coordination of this transition to ensure that it takes place without any obvious security gaps or major disruptions for Europe.
The extremely limited European contributions to the security of Asian partners remain symbolically important (more for the partners themselves than for the US) to underline that the security architectures in Europe and the Pacific region share the goal of global stability.
What will be more difficult for the Europeans will be US demands for clear commitments to confront China primarily with economic deterrence and technological curbs; tasks and costs which, however, still appear minor in comparison to the challenge of securing the home continent.
Decisionmakers would therefore be well advised to take a more focused view of the strategic situation with regard to the growing connections, contagion effects and interferences between the “theaters” in Asia, Europe, and the Middle East. The defiance of American security guarantees, constant escalation, the erosion of the binding effect of international law, and the return to historically based spheres of influence are not just parallel developments between the conflicts over Taiwan, Ukraine, and Israel.
If the central players in these disputes—China, Russia, and Iran—are also covering each other’s backs supported by Beijing's global power ambitions, it must be clear that the foundations of European wishful thinking about the stability and effectiveness of a multilateral international order are increasingly shaky, to say the least.
Gray Area Coalitions
The Indo-Pacific is therefore becoming the scene of both a fierce struggle in the systemic conflict and efforts at cooperation in the fluid gray areas of political reality. Even though the US is urging likeminded partners to move ever closer together, many relationships in the region remain strategically non-committal. Democratic success stories such as Taiwan and South Korea maintain close ties with various hybrid systems (India or Indonesia) and hardline autocracies (above all China). After decades of Western-style democratic optimism, the “Chinese model” is once again making anti-democratic governance a serious political possibility. Compromised democracies in Malaysia, Thailand, Vietnam, and Central Asia are now displaying a new self-confidence toward their own populations and on the international stage.
The West’s incentives and the pressure it is exerting to link cooperation or support to concessions or even political reforms have largely become obsolete. Germany's loss of credibility with Muslim states in the region due to its stance in the Middle East conflict and the misplaced hope of active solidarity with Ukraine from nations that are friendly toward that country—without Germany having invested too much in it itself—show how Europe's clout is reaching its limits.
That leaves the question of what foundations future cooperation can be based on. In terms of “good governance,” the Indo-Pacific offers an unsightly panorama of widespread corruption, a lack of legal stability as well as of press freedom and academic freedom. In practice, this means that political and economic cooperation in this environment is riskier, more expensive, and transactionally more complex than Europeans would like.
This requires a clear statement of one’s interests, both internally and externally. These have shifted substantially. In the past, Germany’s policy in Asia was primarily focused on economic development. Today, a more complex approach is needed. How Germany recalibrates its security policy and foreign trade relations with the region will send a signal to the EU that should not be underestimated. Even if Europe may have lost some of its global appeal, it remains an important driver of globalization—and can help shape the global reordering in the Indo-Pacific.
The focus on the new realities opens up two approaches: On the one hand, looking to Asia raises awareness of the urgency with which the EU must make big decisions and then implement them in a united manner. The Germans in particular need to think bigger and bolder. The recent struggle over e-car tariffs shows how difficult this is proving. Memo to the Chancellery: Emerging countries in the Indo-Pacific in particular are worried about unfair competitive pressure from China—so there is a real opportunity to forge coalitions beyond the G7 instead of parading free trade folklore.
On the other hand, the Indo-Pacific offers development opportunities for years to come. It isn’t just the Europeans who want to reduce their dependency on China—China's neighbors too are seeking options to diversify and in doing so are also looking to Europe. What they want is an EU that is also able to act in large strategic contexts. The European Union’s connectivity strategy, Global Gateway, has so far only succeeded in doing this conceptually; de facto, the EU has so far only administered its supposed panacea in homeopathic doses.
Nevertheless, the idea wasn’t a bad one and may get a second chance in the form of the India-Middle East Europe Economic Corridor (IMEC), which was launched by the Indian G20 presidency in 2023. Active participation could be a sign that the Europeans are not just clinging to their own ideas but are making them compatible and are embracing the impetus coming from the Indo-Pacific. After all, the epicenter of the global reordering isn’t in Europe.
Bernhard Bartsch is Director External Relations of the Mercator Institute for China Studies (MERICS) in Berlin.
Mikko Huotari is the Executive Director of the Mercator Institute for China Studies (MERICS).
