Assessing Asia's Export Slowdown: Opportunities in Policy-Driven Sectors

Asia's export-driven growth model is facing a crossroads in 2025. While global trade volumes rose 2.5% quarter-over-quarter in Q2 2025, the region's export slowdown is unevenly distributed across sectors and geographies, according to a UNCTAD report. Tariffs, geopolitical tensions, and shifting demand patterns are reshaping the investment landscape. Yet, within this volatility lie opportunities for strategic sector rotation-particularly in policy-driven areas where governments are recalibrating growth strategies to mitigate external shocks.

Sector-Specific Dynamics: Manufacturing Resilience and Industrial Softness

The manufacturing sector, particularly electronics and electric vehicles (EVs), has emerged as a bright spot. In Q2 2025, Indonesia's exports surged 10.67% year-on-year, partly driven by businesses front-loading orders during a 90-day tariff pause, according to McKinsey's Q2 2025 review. Vietnam also delivered its second-best quarterly economic performance since 2020, underscoring its role as a manufacturing hub, as noted in the McKinsey review. Meanwhile, the semiconductor and AI industries have shown remarkable resilience. Top APAC companies added $982 billion in market capitalization in Q3 2025, with TSMC's valuation rising 17.6% quarter-over-quarter despite export controls, according to a GlobalData analysis. Chinese tech giants like Alibaba also rebounded, with a 57.5% QoQ valuation increase reported in that GlobalData analysis.

However, industrial leasing activity has softened. In Q2 2025, Asia Pacific's industrial vacancy rates rose, and rents fell 1.5% quarter-over-quarter as occupiers adopted a cautious stance amid tariff uncertainties, according to JLL. This divergence highlights the need for investors to differentiate between sectors: capital-intensive manufacturing and tech-driven innovation are thriving, while traditional logistics and real estate face headwinds.

Trade Policy Headwinds and Growth Revisions

Global trade tensions have intensified, with U.S. tariffs on Chinese exports reaching as high as 245% in 2025, according to a Capwolf analysis. The IMF has revised growth forecasts downward for China (4% in 2025), India (6.6% in 2025, but 5.8% in 2026), and Japan (0.6% in 2025), as noted in the Capwolf analysis. These adjustments reflect the fragility of export-dependent models. For example, South Asia's growth is at risk from higher export tariffs and global demand softening, a point also highlighted by the UNCTAD report.

Yet, Asian economies are adapting. China is pivoting toward domestic consumption and technology-driven growth, with fiscal policy prioritizing infrastructure and elderly care, a trend that GlobalData highlighted. India is engaging in diplomatic trade negotiations with the U.S. to secure tariff exemptions for key sectors, according to the Capwolf analysis. Japan is seeking similar relief for its automotive and electronics industries, as the Capwolf analysis also documents. These policy shifts are creating new investment opportunities in sectors aligned with national strategies.

Strategic Sector Rotation: Policy-Driven Opportunities

1. Semiconductors and AI: The global demand for advanced chips remains robust, despite export controls. TSMC's performance underscores the sector's potential, while governments are investing in domestic production to reduce reliance on foreign supply chains, as described in the GlobalData analysis.
2. Services and Digital Infrastructure: In China, services have accounted for much of employment growth, with AI adoption boosting productivity, according to the Capwolf analysis. India's services sector, particularly IT and business process outsourcing, is also gaining traction as companies seek to offset manufacturing headwinds, a trend noted in the UNCTAD report.
3. Regional Integration: Initiatives like the Regional Comprehensive Economic Partnership (RCEP) and intra-ASEAN trade are diversifying export markets. Investors should prioritize companies benefiting from regional supply chains and cross-border digital infrastructure, as outlined in the Capwolf analysis.
4. Consumer-Driven Sectors: As China and India shift toward consumption, sectors like retail, healthcare, and elderly care are gaining momentum. Fiscal support for these areas is likely to continue, a pattern observed in the GlobalData analysis.

Conclusion: Navigating the New Normal

Asia's export slowdown is not a uniform crisis but a catalyst for structural rebalancing. While traditional manufacturing and logistics face challenges, policy-driven sectors like semiconductors, AI, and services are gaining traction. Investors who rotate into these areas-while hedging against trade policy risks-can capitalize on the region's long-term resilience. The key lies in aligning portfolios with the twin forces of technological innovation and regional economic integration.