Geoeconomic fragmentation is on the rise amidst heightened geopolitical tensions and a surge in inward-looking policies to strengthen economic and national security. Focusing on trade and capital flows, this paper takes a closer look at the implications of geoeconomic fragmentation for the ASEAN+3 and euro area regions, respectively. Both regions exhibit high degrees of trade openness that expose them to repercussions from geoeconomic fragmentation. Our analysis shows that overall ASEAN+3 trade values remain stable, but trade patterns have shifted. While China’s exports have been affected by trade tensions with the United States, ASEAN exports have benefited from the region’s “connector” role. From the European perspective, we document an increase in the euro area’s financial exposures to geopolitically distant countries over the last two decades, and our analysis points to the vulnerability of capital flows to geopolitical risks. Regional financing arrangements should stand ready to support members as they navigate the risks of geoeconomic fragmentation, adapting tools and policies as necessary in line with their mandates. This paper is prepared jointly by staff from AMRO and the ESM.
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