How the US-China trade war will make or break Asean

  • Derwin Pereira says the trade war is pushing Asean to an ideological crossroads
  • The Southeast Asian countries that grouped together during the cold war now have to choose between the US and China, in a decisive test of Asean’s resilience
PUBLISHED : Friday, 16 November, 2018, 1:02am
UPDATED : Friday, 16 November, 2018, 1:02am

Asean could be split by the trade war that has broken out between the United States and China. The consequences of a rupture would be not only economic but strategic.

Economically, Southeast Asia is an integral part of global value chains of production in which the economic superpowers – the US, China, the European Union, Japan and India – occupy nodal positions. Without those value chains, the Association of Southeast Asian Nations would lose its catalytic role in the global economy. Deglobalisation, brought about by the Sino-American trade war, would hurt the superpowers but it would be more ominous for Asean, whose regional rationale is founded on its global relevance. Diminishing interdependence and integration would undermine that rationale.

It is a platitude that the liberalisation of trade in goods and services has increased Asean’s economic bandwidth. The more important realisation is that such liberalisation is not the natural outcome of domestic factors but a congruent regional attempt to plug into global economic opportunities.

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The European Union has benefited from the existence of national, economic and political affinities in a culturally homogeneous region, intrinsic resources it has marshalled to resist North American dominance of the global economy. In contrast, Asean's disparate nations came together not because of their indigenous similarities but because the rest of the world made them come together. The alternative would have been to remain separate.

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Globalisation amplified Europe's regional coherence, but it initiated the very economic region called Asean. That is why the US-China trade war has raised the stakes so high for Asean. Its economic coherence will be threatened by the world’s two economic superpowers falling out, and peer powers choosing sides .

Asean, too, will face having to choose sides. However, it will not go over to one side completely. Since it is neither a country – like the US or China – nor a supranational entity – like the EU – it could break up along the fault lines created by its member nations’ external affiliations.

Some Asean countries, such as Cambodia, Laos and perhaps Myanmar, are likely to climb on the China bandwagon because that is where their economic interests lie. Others, such as Vietnam, would possibly go the other way because they would have more to lose than gain by abandoning the US. Indonesia would lose either way. So would Thailand, Malaysia and Singapore, which are heavily invested in a global economic order dependent on Sino-American concord.

But there is nothing one subset of countries can do to prevent the other subset from defecting to the Chinese side of the trade war. Although the defection would not spell the end of Asean – because it has developed certain institutional capabilities in non-economic areas in the process of evolving into a regional organisation – it would subvert Asean’s role as an inter-nodal actor in global economics. Take that role away, and Asean would regress into a collection of states whose interactions are less than the sum of their parts.

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Asean would become a memory in search of a future. That memory would be strategic as much as economic. It should not be forgotten that Asean began as a cold-war grouping of capitalist states aligned with the US’ quest for global dominance, which ran up against the countervailing efforts of the Soviet Union. Asean was not a neutral organisation: it was affiliated with one side of a global ideological divide. After the cold war ended, Asean expanded to include Southeast Asian nations left behind by the retreat of communism.

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Now, as the US enters a war of attrition with China, Asean’s neat ideology could be thrown into disarray. The choice would no longer be between capitalism and communism: it would be between two versions of capitalism, each determined to prove the other aberrant.

The compass of ideology would no longer guide Asean through the international wilds. Instead, its more autocratic states would veer towards China, while their democratic counterparts would look to the US. Unfortunately, however, since protectionist economics cannot expand political space, any hope that the US-China trade war will encourage Asian democracies to embrace the US is misplaced.

The contraction of political options will have strategic consequences. China has embarked on a long-term plan to recapture historical space lost to the imperial West. Its military modernisation is part of that existential effort. It may succeed, or it may not. Whatever the result, Asean nations, which have no common defence policy, will have to choose which side of the Sino-American military contest to be on. Their economic instincts will help them make choices, but there is no knowing which side will prevail.

It is difficult to be optimistic in the circumstances. On the bright side, however, Asean may just need such a test, to prove its resilience. Except for the 1997 Asian financial crisis and the 2008 global economic crisis, Asean has not been tested on its existential rationale since Vietnam’s invasion of Cambodia in 1978. Perhaps it is time to see how Asean responds to the widening gulf between the US and China.

If Asean pulls through, it would have proved its mettle. If it gets torn apart, it would have been destroyed by the very shifts in the international balance of power that created it.

Derwin Pereira is founder and CEO of Pereira International, a Singapore-based political consultancy. He is also a member of Harvard University’s Belfer Centre for Science and International Affairs