Age of Agility: Key Themes Shaping APAC in 2026

The outlook for Asia-Pacific (APAC) in 2026 is shaped by the inflection point of 2025’s changing geopolitical and trade landscape. With moderating overall growth and geopolitical reordering, the region will face trade shifts, US-mainland China strategic competition, and multiple transformations in technology, labor, climate, and capital during 2026. These dynamics will reshape policies, investments and strategic priorities across the region.

• Persisting trade policy uncertainty will forge closer trade alliances in Asia, driving deeper intraregional trade and manufacturing integration. The resumption of reshoring activity will create significant competition among ASEAN and South Asian countries looking to attract manufacturing investment.
• APAC is expected to see the most pronounced slowdown globally, partly reflecting the unwinding of the exports boost from tariff front-running in 2025. The effect on domestic economies will be partly mitigated by enhanced social and macroeconomic policies.
• Global AI momentum is likely to continue in 2026, with Asia attaining a larger global role. Major Asian economies will respond to developments in AI by introducing regulations to reconcile protection of domestic industries while seeking to secure access to advanced technology.
• Intensifying US-mainland China strategic competition and perceived greater uncertainty over US security guarantees will drive major APAC economies to increase their defense spending above GDP growth.

The APAC region faces shifting alignments and persistent trade policy uncertainty in 2026. The end-2025 improvement in US-mainland China trade ties has eased near-term risks, by lowering duties on Chinese goods sold in the US closer to the rates applied on most Association of Southeast Asian Nations (ASEAN) economies; this will reduce the appeal of sourcing products via third-party countries for tariff avoidance over the short term.

Still, this easing is unlikely to stop the trend of strategic trade diversification across Asia-Pacific. Overall, trade uncertainties remain a likely downside factor for the region’s growth.

The trade disputes in 2025 will drive stronger trade integration in APAC during 2026. This will encourage deeper manufacturing integration within regional economies, with more local sourcing, documentation of domestic value-addition (DVA) and stricter adherence to rules of origin (ROO) thresholds.

Mainland China will strengthen investment-led integration, looking to embed production in key markets. Chinese manufacturing will continue moving up the value chain, with more firms relocating their production facilities to ASEAN member states.

Policy in APAC will reorient to secure access to advanced technology, including semiconductors, chips and magnets, as evidenced in mainland China’s five-year plan proposals and India’s emerging critical minerals strategy. Areas of cooperation and competition — and the socioeconomic impact of such initiatives — will be reinforced by AI development.

Mainland China, the EU and the US lead global AI development and diffusion. While the US leads on open innovation, mainland China will offer state-backed development at scale and cost, while the EU champions global governance. These regions’ overwhelming leadership of AI development — and their differentiated approaches — will require Asia-Pacific economies to adopt independent models and/or align with other models in 2026, with decisions across foundational hardware, systems architecture and platform choices.

The adoption is likely to be most evident in the regulation of AI, where multiple new measures will be introduced in 2026, balancing access to Asia-Pacific economies’ anchor markets while protecting domestic industries, and seeking to scale technological growth. 

Global AI momentum is likely to continue into 2026 — with Asia-Pacific projected to be the fastest-growing market by generative AI business revenue globally, rising by approximately 65% year over year according to a forecast from 451 Research, a division of S&P Global Energy.

Strong US demand will be a major growth driver in the sector, as seen in expanded regional exports from Asia-Pacific in 2024 and 2025 for semiconductors, computing hardware, display cards, GPU systems and telecommunications equipment. In addition to infrastructure and hardware exports, South and Southeast Asian economies will build on rapidly growing digital economies and younger, technology-oriented populations. Mainland China will lead the development of future data centers in Asia-Pacific, followed by India, South Korea, Japan and Malaysia. Data centers in major Asian cities, however, are likely to strain limited water and electricity supplies, with a risk of triggering civil unrest.

In 2026, net employment levels are forecast to expand in response to AI investment in India and Japan, but with reductions in employment levels continuing in mainland China. India will benefit from its existing IT infrastructure and skilled IT workers, and hiring for AI development roles is likely to expand substantially. While Japan’s approach aims to utilize AI to ease labor shortages, the Chinese approach appears to prioritize efficiency gains and process optimization.

Higher defense spending will be driven by intensifying US-mainland China strategic competition, perceived greater uncertainty over US security guarantees, and the recent and potential rise of limited conflicts across regions. National data for 2025 and 2026 show above-GDP-growth increases in defense spending across APAC, including by mainland China, India and South Korea.

—With contributions from Jeffery McElroy, Aiman Othman, and Smrithi Premjeet