The Association of Southeast Asian Nations (ASEAN) has continued to emerge as an economic winner of increasing geopolitical tensions between China and the United States, though risks from fragmentation remain, the International Monetary Fund (IMF) says.

According to the U.N. agency, the region has long benefited from decades of globalization, building strong trade links with China and the United States, the world’s two largest economies. 

Though U.S.-China tensions have been deteriorating in recent years, ASEAN has adapted and continued to integrate with the global economy, the IMF said in its latest Asia-Pacific Outlook report, released Friday.

“Despite geopolitical tensions, ASEAN has continued to strengthen trade and investment links with both China and the U.S.,” the report said. 

Data from the IMF showed that since 2018, ASEAN economies have increased their market share of both Chinese and U.S. imports, with the superpowers absorbing a greater share of the region’s value added.

Foreign direct investment from both countries has also increased in ASEAN.

“[T]he region has even been able to take advantage of trade diversion opportunities caused by US-China trade tensions,” the report added. 

Former U.S. President Donald Trump kicked off a trade war with China by placing a series of tariffs on thousands of Chinese imports in 2018 and 2019, prompting retaliation from Beijing. The Biden administration has kept most of those tariffs in place and even set additional levies in May. 

Empirical analysis shows that several ASEAN economies have seen exports of products targeted by Chinese or U.S. tariffs grow faster than other exports, the IMF said.

It added that ASEAN has seen exports of these tariffed goods increase to countries outside China and the U.S., which suggests it has not only benefited from trade diversion but also realized economies of scale.

Trade between members of the political and economic union has also increased, according to the report.  

Overall, the IMF says these trends have contributed to ASEAN increasing its share of inward foreign direct investment, world exports and global value added. 

However, the financial agency noted that gains from the China-U.S. tariffs have not translated into stronger overall exports for all ASEAN members. 

Whereas some members, like Vietnam, experienced strong export growth relative to the global average since 2018, export growth slowed in others, like Thailand, or stagnated, as in the case of the Philippines and Singapore.

CNBC has previously reported that Vietnam has emerged as one of the top destinations for firms diversifying supply chains away from China amid heightened geopolitical risks, along with other Southeast Asian countries such as Malaysia and Indonesia.

Still, the IMF warns that the intensification of geopolitical pressures could harm the region in the future. 

For example, global economic fragmentation is likely to reduce activity in ASEAN’s major trading partners, such as the U.S. and China, and could thus lower external demand for goods from the heavily export-dependent region. 

The IMF’s outlook on Friday raised its 2024 and 2025 growth prospects for the entire Asia-Pacific region by 0.1%, up from its last forecast in April.

However, despite the markup, it also warned that growth is facing more risks, reflecting “rising geopolitical tensions, uncertainty about the strength of global demand, and potential for financial volatility.”