The writer is CEO of AsiaBIZ Strategy, a Singapore-based consultancy that provides Asian market research and investment/trade promotion services

Asia and the US’s strong business ties are well-established. Data from the International Trade Centre shows that of the top 10 source countries of the US’s goods imports since 2021, six are from Asia: China, Japan, South Korea, Vietnam, Taiwan and India. As for FDI, the US remains Asia-Pacific’s number one outward investment destination, while the US is also the biggest foreign investor in the Association of Southeast Asian Nations (Asean) region, according to Asean data. 

Yet Asia-US trade and FDI dynamics are evolving, and flows are increasingly driven by qualitative determinants such as talent, technology and industry clusters. We are seeing a shift away from quantitative factors like costs and taxes, which were primary drivers in the past, while proximity to market and market growth will always remain important. This movement aligns with the OECD-led 15% global corporate minimum tax, which shifts the focus away from fiscal incentives and towards softer, qualitative factors.

The first key qualitative determinant driving US activity in Asia is greater availability of a skilled labour market, thanks to improvements in the talent of Asia’s workforce over the past few years. In business school Insead’s Global Talent Competitiveness Index 2023 ranking of 113 countries, Singapore placed second, while the US was third. Other Asia-Pacific countries included Australia (eighth), New Zealand (18th), South Korea (24th), Japan (26th), China (40th), Brunei (41st) and Malaysia (42nd). Remote working and online collaboration has made it easier for the US to tap into Asia’s talent pool. 

The second qualitative determinant is the regulatory environment. Asia and the US are working together to improve their economic connections, promote connectivity and strengthen supply chains by co-developing standards on cross-border data flows and data localisation. 

The third qualitative determinant is digitalisation and innovation. Since 2011, the US has remained the biggest investor in Asia-Pacific’s digital sectors, which in turn boosts digital trade across the region. Riding this growth, we also now see increased deployment of digital infrastructure, electric vehicles and Industry 4.0 manufacturing practices. By investing in digital infrastructure in Asia’s growing tier 2 cities, the US continues to aid Asia’s digital economy by reducing trade and transaction costs. Combined with better access to talent and narrowing regulatory gaps, the Asia-US partnership has much more potential to come.

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This article first appeared in the June/July 2024 print edition of fDi Intelligence.