There’s “incredibly high stakes” on the geopolitical front heading into 2026, James Crabtree, distinguished visiting fellow on the European Council on Foreign Relations, said on Monday during the Fortune Innovation Forum in Kuala Lumpur, Malaysia. Despite the “shaky truce” between U.S. President Donald Trump and China President Xi Jinping agreed last month, the landscape is still littered with “unexploded ordinance,” he warned. 

The China-U.S. rivalry creates both opportunities and risks for Southeast Asia. The region has long tried to stay relatively neutral in superpower conflict, yet worsening tensions between Washington and Beijing could lead to pressure to pick a side. 

But “it’s not about making a choice, it’s about navigating the opportunities,” said Dato’ Siobhan Das, chief executive officer of the American Malaysian Chamber of Commerce. While Southeast Asia has long succeeded by offering a growth-friendly ecosystem for multinational companies, the region must cultivate new competitive advantages to meet shifting global dynamics.

Take Malaysia: panelists pointed to Prime Minister Anwar Ibrahim’s recent trade engagement with the U.S. as an example of how middle economies can stay nimble and relevant. During his meeting with Trump, Anwar secured tariff relief on key exports and bolstered diplomatic ties with Washington. 

Taking advantage of the face-to-face meeting, Anwar secured tariff relief on key exports and bolstered diplomatic ties. Diversification is another tool that countries can use, Das noted, pointing to Malaysia’s new focus on emerging markets in Africa, South America and the Middle East.

But diversification has limits, she warned. “In the high-tech space, there are not that many countries that you’re going to be exporting to.”

Geopolitics is entering the digital world too. Middle powers must strengthen their “sovereign AI” strategies to protect their interests, argued Vivek Luthra, senior managing director at Accenture. (Sovereign AI is a push to develop and operate AI using locally-developed models and infrastructure, avoiding being too reliant on technology entirely developed in foreign countries like the U.S. or China)

“Countries want to control the overall value chain from chips to insight,” he said, noting that technology is now a matter of economic security, not just a driver of economic growth.

Size and scale may be poor protection in a more geopolitically complex world. Yuelin Yang, a board member on the Asian Corporate Governance Association, warned that corporate complexity could now be a liability. Multinational corporations now have to quickly and accurately filter huge amounts of data for decision-makers at headquarters. 

By contrast, a smaller, locally-focused family firm could be better positioned to adapt to change, Yang suggested.

Panelists expressed a mix of caution and optimism when it came to forecasts for 2026. Inflation and structural costs are likely to rise as countries and companies pivot from pure efficiency toward security, resiliency, and redundancy.

Yet ASEAN is far from a bystander, as panelists cited the region’s young population, attractiveness to foreign direct investment, and potential for deeper collaboration with trading partners as reasons for optimism amid global turbulence.