Flashpoints | Economy | Southeast Asia

Moving Up, Locked In: The Hidden Costs of ASEAN’s Semiconductor Push

As the region moves up the chip value chain – toward AI development, advanced logic, and high-bandwidth memory – U.S. regulatory pressures increase.

Last year, when Malaysia unveiled the MARS1000 – its first home-grown edge AI processor – it marked a turning point for a region long content to assemble and test chips designed elsewhere. Southeast Asia now wants to design them. Malaysia is building a dedicated chip design park and struck a $250 million technology transfer deal with Arm Holdings. Singapore accounts for roughly 10 percent of global semiconductor output and 20 percent of global semiconductor equipment production. Vietnam, Thailand, the Philippines, and Indonesia are each racing up the supply chain, from circuit boards to power chips to AI-related components. The ambition is real, the investment is flowing, and the momentum is genuine. The goal, for now, is incremental upgrading – better packaging, more chip design, higher-margin segments – not a leap to frontier fabrication.

To turn this momentum into something collective, Southeast Asian nations have launched the ASEAN Framework for Integrated Semiconductor Supply Chains (AFISS), a flagship initiative under Malaysia’s 2025 ASEAN chairmanship. The framework aims to transform a patchwork of national hubs into an integrated production base capable of acting collectively in a fragmented global market, coordinating everything from critical minerals to chip design, advanced packaging, and cross-border talent mobility. On paper, it is one of the most ambitious industrial coordination efforts the region has ever attempted, though one without binding milestones. 

While individual ASEAN states have set national roadmaps toward 2030 and beyond, the vision of a fully indigenous “design-to-deployment” loop remains aspirational. Growing demand for data centers and AI has caused imports of memory and logic chips to rise faster than exports, leaving the region strategically interdependent and reliant on foreign innovation.

What the ambition obscures is the legal architecture that comes with it. Integrating into advanced chip segments does not necessarily place ASEAN in a neutral marketplace. It may place the region inside a regulatory ecosystem it did not design and cannot easily exit, one whose legal and political center of gravity sits in Washington. 

Indeed, that architecture was never absent at lower nodes; it simply imposed fewer demands. Upgrading is less a move into new regulatory terrain than a renegotiation of terms within a system ASEAN has always inhabited, now at higher stakes and with less room to maneuver. The risk is calibrated: U.S. regulatory pressure remains modest at lower nodes, but deepens as the region moves up – toward AI development, advanced logic, and high-bandwidth memory.

The investment data reveals the story. Since 2020, ASEAN has attracted roughly $60.8 billion in semiconductor foreign direct investment, with nearly 80 percent concentrated in Singapore and Malaysia. American firms anchor the top tier. Their allies fill the rest: Taiwan’s UMC expanding fabrication capacity in Singapore, TSMC-affiliated Vanguard International Semiconductor’s $7.8 billion joint venture with NXP, Japanese equipment suppliers integrated into regional fabs, European lithography leaders whose tools serve as industrial workhorses for specialized nodes in Singapore and Malaysia, among others. These investors operate within a tightly governed regulatory architecture orchestrated by Washington and enforced across the entire supply chain.

U.S. export controls govern not merely what leaves American shores but any product made anywhere using American technology, software, or design tools. The Foreign Direct Product Rule extends this reach across entire global supply chains. A chip designed in Penang using American electronic design automation (EDA) software, manufactured on tools from a Japanese supplier that itself depends on American components, falls within this regulatory perimeter, regardless of where the final product ships. 

Taiwan’s export control of strategic high-tech goods, Japan’s restrictions on advanced manufacturing equipment, South Korea’s foreign trade act, and the Netherlands’ controls over lithography tools form additional layers of the same coordinated network. As proposed U.S. legislation such as the Chip Security Act and the Remote Access Security Act (RASA) advances, the compliance perimeter would expand further, quietly narrowing the policy space that ASEAN governments thought they had. 

The policy landscape is gradually coming into focus. Singapore’s early participation in the Pax Silica initiative – a U.S.-backed supply chain security framework – reflects its commitment to supply chain security and trusted technology cooperation, situating it within a broader network of like-minded technology partners. Likewise, Malaysia’s Agreement on Reciprocal Trade with Washington includes explicit export control alignment provisions. Taken together, they offer an early glimpse of how regional integration into advanced semiconductor ecosystems is gradually taking shape – through practical agreements rather than grand declarations.

This creates a growing tension with the “ASEAN Way,” the region’s long-standing commitment to consensus, flexibility, and calibrated engagement among competing great powers. That framework was built for a world of trade negotiations and diplomatic balancing acts. Semiconductors increasingly operate by different logic: security mandates, ecosystem standards, and compliance architecture. The two do not always sit easily together. As ASEAN integrates more deeply into advanced semiconductor segments, managing the balance between technological access and strategic flexibility will require more deliberate and explicit policy choices than the region has so far been called upon to make.

The region’s internal coordination challenges compound the difficulty. The framework’s ambition is to cultivate complementary strengths across member states, channeling chip design toward some, fabrication toward others, packaging and testing toward still others. The reality, however, is that every government wants every higher-value added segment simultaneously. Capital for advanced fabrication is scarce. Skilled engineers in chip design, AI hardware, and compound semiconductors remain in short supply across the region. When ASEAN countries compete for the same talent pool, the same foreign investment, and the same flagship manufacturing projects, complementarity could become a polite word for competition.

National incentive structures present a coordination challenge worth acknowledging. Governments across the region are understandably focused on strengthening domestic capabilities and maximizing the benefits of inbound investment, goals that are entirely legitimate but that will require careful alignment with regional priorities. Multinational chipmakers operate on commercial and geopolitical logic that does not always follow regional blueprints. Making the framework’s long-term vision to 2045 actionable will require clearly articulated interim milestones, particularly in an industry defined by rapid technological cycles and shifting geopolitical conditions.

And then there is China – the variable that makes every other tension sharper. China can be simultaneously a direct competitor in mature chip segments, a potential alternative supplier as its domestic lithography and memory capabilities advance, and – for most ASEAN firms – the largest single market. This triple role calls on governments across the region to navigate carefully, maintaining access to advanced technology ecosystems while managing commercially significant relationships with China. As Chinese semiconductor capabilities continue to mature, the calibration required will grow more demanding. How China-U.S. technological competition evolves will significantly influence the strategic landscape for ASEAN, making flexibility and adaptability in regional frameworks not merely desirable, but essential.

ASEAN’s semiconductor ambitions are legitimate and the progress is real. The region deserves credit for attempting serious industrial coordination at a moment when much of the world is retreating into national silos. The framework addresses important dimensions of the challenge – investment attraction, infrastructure coordination, talent mobility – but the harder questions of regulatory entanglement and strategic positioning remain largely open. 

The deeper ASEAN integrates into advanced chip segments, the more carefully it will need to manage the relationship between technological access and strategic flexibility. That balance – remaining connected enough to the global technology stack to compete, while preserving enough room to maneuver across competing great power ecosystems – is the real challenge of ASEAN’s semiconductor moment. Addressing it will require deliberate policy choices that go beyond industrial coordination: choices about the terms and conditions of integration itself, and the kind of strategic future the region wants to build.

The author is grateful to Ching-Fu Lin and Anh Nguyen for helpful comments on an earlier draft, and to industry practitioners who wish to remain anonymous for valuable insights. All remaining errors and views expressed are the author’s own and do not reflect the positions of his affiliated institutions.

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Last year, when Malaysia unveiled the MARS1000 – its first home-grown edge AI processor – it marked a turning point for a region long content to assemble and test chips designed elsewhere. Southeast Asia now wants to design them. Malaysia is building a dedicated chip design park and struck a $250 million technology transfer deal with Arm Holdings. Singapore accounts for roughly 10 percent of global semiconductor output and 20 percent of global semiconductor equipment production. Vietnam, Thailand, the Philippines, and Indonesia are each racing up the supply chain, from circuit boards to power chips to AI-related components. The ambition is real, the investment is flowing, and the momentum is genuine. The goal, for now, is incremental upgrading – better packaging, more chip design, higher-margin segments – not a leap to frontier fabrication.

To turn this momentum into something collective, Southeast Asian nations have launched the ASEAN Framework for Integrated Semiconductor Supply Chains (AFISS), a flagship initiative under Malaysia’s 2025 ASEAN chairmanship. The framework aims to transform a patchwork of national hubs into an integrated production base capable of acting collectively in a fragmented global market, coordinating everything from critical minerals to chip design, advanced packaging, and cross-border talent mobility. On paper, it is one of the most ambitious industrial coordination efforts the region has ever attempted, though one without binding milestones. 

While individual ASEAN states have set national roadmaps toward 2030 and beyond, the vision of a fully indigenous “design-to-deployment” loop remains aspirational. Growing demand for data centers and AI has caused imports of memory and logic chips to rise faster than exports, leaving the region strategically interdependent and reliant on foreign innovation.

What the ambition obscures is the legal architecture that comes with it. Integrating into advanced chip segments does not necessarily place ASEAN in a neutral marketplace. It may place the region inside a regulatory ecosystem it did not design and cannot easily exit, one whose legal and political center of gravity sits in Washington. 

Indeed, that architecture was never absent at lower nodes; it simply imposed fewer demands. Upgrading is less a move into new regulatory terrain than a renegotiation of terms within a system ASEAN has always inhabited, now at higher stakes and with less room to maneuver. The risk is calibrated: U.S. regulatory pressure remains modest at lower nodes, but deepens as the region moves up – toward AI development, advanced logic, and high-bandwidth memory.

The investment data reveals the story. Since 2020, ASEAN has attracted roughly $60.8 billion in semiconductor foreign direct investment, with nearly 80 percent concentrated in Singapore and Malaysia. American firms anchor the top tier. Their allies fill the rest: Taiwan’s UMC expanding fabrication capacity in Singapore, TSMC-affiliated Vanguard International Semiconductor’s $7.8 billion joint venture with NXP, Japanese equipment suppliers integrated into regional fabs, European lithography leaders whose tools serve as industrial workhorses for specialized nodes in Singapore and Malaysia, among others. These investors operate within a tightly governed regulatory architecture orchestrated by Washington and enforced across the entire supply chain.

U.S. export controls govern not merely what leaves American shores but any product made anywhere using American technology, software, or design tools. The Foreign Direct Product Rule extends this reach across entire global supply chains. A chip designed in Penang using American electronic design automation (EDA) software, manufactured on tools from a Japanese supplier that itself depends on American components, falls within this regulatory perimeter, regardless of where the final product ships. 

Taiwan’s export control of strategic high-tech goods, Japan’s restrictions on advanced manufacturing equipment, South Korea’s foreign trade act, and the Netherlands’ controls over lithography tools form additional layers of the same coordinated network. As proposed U.S. legislation such as the Chip Security Act and the Remote Access Security Act (RASA) advances, the compliance perimeter would expand further, quietly narrowing the policy space that ASEAN governments thought they had. 

The policy landscape is gradually coming into focus. Singapore’s early participation in the Pax Silica initiative – a U.S.-backed supply chain security framework – reflects its commitment to supply chain security and trusted technology cooperation, situating it within a broader network of like-minded technology partners. Likewise, Malaysia’s Agreement on Reciprocal Trade with Washington includes explicit export control alignment provisions. Taken together, they offer an early glimpse of how regional integration into advanced semiconductor ecosystems is gradually taking shape – through practical agreements rather than grand declarations.

This creates a growing tension with the “ASEAN Way,” the region’s long-standing commitment to consensus, flexibility, and calibrated engagement among competing great powers. That framework was built for a world of trade negotiations and diplomatic balancing acts. Semiconductors increasingly operate by different logic: security mandates, ecosystem standards, and compliance architecture. The two do not always sit easily together. As ASEAN integrates more deeply into advanced semiconductor segments, managing the balance between technological access and strategic flexibility will require more deliberate and explicit policy choices than the region has so far been called upon to make.

The region’s internal coordination challenges compound the difficulty. The framework’s ambition is to cultivate complementary strengths across member states, channeling chip design toward some, fabrication toward others, packaging and testing toward still others. The reality, however, is that every government wants every higher-value added segment simultaneously. Capital for advanced fabrication is scarce. Skilled engineers in chip design, AI hardware, and compound semiconductors remain in short supply across the region. When ASEAN countries compete for the same talent pool, the same foreign investment, and the same flagship manufacturing projects, complementarity could become a polite word for competition.

National incentive structures present a coordination challenge worth acknowledging. Governments across the region are understandably focused on strengthening domestic capabilities and maximizing the benefits of inbound investment, goals that are entirely legitimate but that will require careful alignment with regional priorities. Multinational chipmakers operate on commercial and geopolitical logic that does not always follow regional blueprints. Making the framework’s long-term vision to 2045 actionable will require clearly articulated interim milestones, particularly in an industry defined by rapid technological cycles and shifting geopolitical conditions.

And then there is China – the variable that makes every other tension sharper. China can be simultaneously a direct competitor in mature chip segments, a potential alternative supplier as its domestic lithography and memory capabilities advance, and – for most ASEAN firms – the largest single market. This triple role calls on governments across the region to navigate carefully, maintaining access to advanced technology ecosystems while managing commercially significant relationships with China. As Chinese semiconductor capabilities continue to mature, the calibration required will grow more demanding. How China-U.S. technological competition evolves will significantly influence the strategic landscape for ASEAN, making flexibility and adaptability in regional frameworks not merely desirable, but essential.

ASEAN’s semiconductor ambitions are legitimate and the progress is real. The region deserves credit for attempting serious industrial coordination at a moment when much of the world is retreating into national silos. The framework addresses important dimensions of the challenge – investment attraction, infrastructure coordination, talent mobility – but the harder questions of regulatory entanglement and strategic positioning remain largely open. 

The deeper ASEAN integrates into advanced chip segments, the more carefully it will need to manage the relationship between technological access and strategic flexibility. That balance – remaining connected enough to the global technology stack to compete, while preserving enough room to maneuver across competing great power ecosystems – is the real challenge of ASEAN’s semiconductor moment. Addressing it will require deliberate policy choices that go beyond industrial coordination: choices about the terms and conditions of integration itself, and the kind of strategic future the region wants to build.

The author is grateful to Ching-Fu Lin and Anh Nguyen for helpful comments on an earlier draft, and to industry practitioners who wish to remain anonymous for valuable insights. All remaining errors and views expressed are the author’s own and do not reflect the positions of his affiliated institutions.

Han-Wei Liu is associate professor of law at Singapore Management University and deputy director of the Centre for Digital Law. 

Malaysia semiconductor industry

Singapore semiconductor industry

Southeast Asia semiconductor industry

Thailand semiconductor industry

U.S. export control policy

U.S.-China technology competition

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