In this discussion, Dr. Mary E. Lovely, Senior Fellow at Peterson Institute for International Economics, and Sourabh Gupta, Head of the Trade & Tech Program at the Institute for China-America Studies, spoke about the growing importance of ASEAN and the current state of shifting supply chains the Southeast Asian region. This conversation is hosted by Owen Churchill, U.S.-Based Reporter at the South China Morning Post. The Role of ASEAN in the Diversification of Supply Chains The Association of Southeast Asian Nations, or ASEAN, is playing an increasingly important role in global supply chains and is having effects on many countries including the U.S., China, Vietnam, Mexico, and South Korea. As a result of the U.S. tariffs that were imposed on Chinese goods, trade is being diverted to ASEAN regions. For example, there is some trade diversion to Vietnam, “particularly in more labor-intensive activities, including some parts of the electronic supply chain,” said Dr. Lovely. Non-ASEAN countries also saw changes in supply chain involvement as Mexico was used for U.S. nearshoring, and South Korea began assembling and trading high-end components as opposed to using China as the “middle man”. The Power of Partnerships and Making Them Work Countries within the Regional Comprehensive Economic Partnership (RCEP) free-trade agreement have become a very robust closed-system supply hub, as 50% of RCEP trade is to other RCEP countries, Dr. Lovely stated. The RCEP is composed of ASEAN members as well as Australia, China, Japan, New Zealand, and South Korea. Within the ASEAN framework, different countries are at different levels of economic and supply chain integration. “With regard to the specific trade diversion elements [of ASEAN], [diversion] has gone to those countries which have really made [a bigger] effort to be part of that supply chain,” Gupta noted. In other words, the countries that have put forth real efforts to implement regulatory and infrastructure changes are in a great position to benefit within ASEAN. Creating a “flexible market for factor movements, capital, labor,” and “providing complementary infrastructure,” are a few steps that countries within an integrated supply network should take, said Dr. Lovely. Additionally, it’s important to recognize the role of multinational enterprises in supply chains and make the country hospitable to contracts between foreign firms and local suppliers. China’s Current Position Gupta commented that the current trade diversion may actually be a good opportunity for China in some ways, as the Chinese government is realizing they “[need] to move from being a high growth economy to becoming a more high productivity-led economy.” This means being a more consumption-oriented, services-oriented, and advanced-manufacturing-oriented economy, according to Gupta. China and Taiwan recently applied to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). If China’s application is accepted, it could be a major force for growth within the country. “The CPTPP has very strong disciplines on industrial subsidies and particularly on SOEs, and [the agreement] was essentially written in such a way … to make it impossible for China to exceed on those principles,” said Gupta. This means that China would likely need to make certain reforms and increase transparency surrounding subsidy practices to be accepted. Dr. Lovely stated that there are two different futures that might come out of agreements and partnerships such as ASEAN, RCEP, and CPTPP: “one [future] with a highly balkanized world, and one where the world is able to achieve even a deeper measure of integration.” For countries to cooperate successfully together, “we need not just adherence to the letter, but also the spirit of the law,” commented Dr. Lovely.