Southeast Asia in the Crossfire of the US–China Trade War
The leaders of two key ASEAN nations, Indonesian President Prabowo Subianto and Malaysian Prime Minister Anwar Ibrahim, recently met in Langkawi. Their discussion highlighted the critical role ASEAN plays as a platform for collective middle-power diplomacy. Subianto emphasized that united ASEAN voices are essential for garnering the attention of larger powers.
The European Union and Green Regulations
Despite their diplomatic tone, both leaders hinted at concerns over European Union regulations impacting their respective palm oil industries. The potential economic disruption from EU sustainability rules underscores the broader challenges faced by ASEAN economies.
Chinese Economic Imbalances
Well before the 2024 US-China trade war escalation, SoutheastAsian policymakers were already grappling with the macroeconomic imbalances in China. Anti-dumping measures against Chinese goods were a common response, with Indonesia proposing a sweeping 200 per cent tariff on Chinese products. However, such extreme measures can lead to a contagion of protectionism.
The Risk of Protectionism
The risk of tariff contagion is significant. Local politicians in Southeast Asia are increasingly under pressure to protect local industries from what they perceive as unfair competition. However, the broader economic consequences of protectionism could result in a closed regional economy, missing out on the benefits of trade with China.
ASEAN’s Unified Response
ASEAN needs a coordinated strategy that respects existing WTO rules to avoid a spiral into protectionism. Acting together, ASEAN can exercise more effective agency and leverage globally. The Multi-Party Interim Appeal Arbitration Agreement (MPIA), currently only supported by the Philippines and Singapore, offers an opportunity for ASEAN to strengthen its commitment to a rules-based trading system.
The US–China Trade War
The ongoing US-China trade war could exacerbate Southeast Asia’s economic challenges. With a significant trade surplus with the US, countries in the region risk punitive tariffs if seen as facilitators for Chinese products bypassing trade restrictions. President Donald Trump’s re-election signalizes a continued aggressive approach to trade.
Consequences of Targeted Tariffs
The potential for targeted tariffs based on firm nationality rather than location could deter Chinese investment in Southeast Asia. While some policymakers see benefits from trade diversion, the costs of a trade war far outweigh the short-term gains. Southeast Asia must work towards stability and mutually beneficial trade relations.
The Path Forward
In navigating these complex economic challenges, ASEAN policymakers must prioritize unity and a rules-based approach. By fortifying their commitment to international trade agreements and working together, ASEAN can better withstand external pressures and foster sustained economic growth.
Join the discussion and share your thoughts on how ASEAN can navigate these challenging times. Your insights can help shape the future of regional economic cooperation.