Why ASEAN Needs to Act Now in the U.S.-China Trade War
Mihir Nayar
In July of 2018, President Trump followed through on a long-held promise to impose tariffs on China for their unfair trade practices. Since then, many American citizens have heard about the tariff war between the United States and China from a variety of American media outlets, specifically about the ways that this war affects the American economy. However, this same tariff war will also impact several nations in Southeast Asia and result in serious long-term implications on the Association of Southeast Asian Nations (ASEAN).
For a long time, the ten nations of the ASEAN have tried to establish a free trade zone in order to boost their own economic interests. However, these ten nations are widely divided on how to address tensions over China’s encroachment into the disputed waters of the South China Sea. The South China Sea is a major hub of shipping wherein “an estimated one-third of the world’s shipping passes through the sea.” China’s encroachment and deployment of military forces such as warships and fighter jets in the resource–rich South China Sea has seen them gain control of the majority of the import and export practices within Asia. Unfortunately, China has now been forced to more forcefully protect their national economy and trade interests in the South China Sea due to its trade war with the United States.
In the short-term, the trade war between China and the United States should actually benefit the ten countries within the ASEAN. Already, Vietnam’s exports of the tariffed goods to the United States surged by 29% within the first fiscal quarter of 2019, while Cambodia, Laos, and Myanmar also saw noticeable gains in their trading with America. In a more specific way, certain commodities have been imported and exported more frequently between the ASEAN member states and the US. For instance, China’s 25% tariff on soybeans from the United States, which began in July 2018, has caused a surge of US exports to ASEAN, with the US Soybean Export Council targeting soybean exports to third parties such as Japan, Mexico, Myanmar, Nigeria, Pakistan, Taiwan and Thailand to fill the gap left by China. The soybean commodity serves as just one example of how ASEAN has been a primary beneficiary of heightened trade tensions between China and the United States. It is clear that the decrease in imports received and exports sent out by China to and from the United States has resulted in the United States increasing their importation and exportation with ASEAN. What’s worrying for ASEAN is whether this short-term growth in trading practice with America will continue in the long-run.
In the more distant future, the effects of the US-China trade war on ASEAN remain unclear that could yield either positive or negative results for ASEAN member states. There could be continued economic growth within Southeast Asia, but only if countries within ASEAN utilize multilateralism efficiently to work together with the United States on trading and investment. This means that ASEAN should actively seek to continue communicating with the U.S. about how both parties can mutually benefit from any future trade agreements or developments. At all costs, ASEAN must not be left out of the economic framework for the United States and must further solidify their better relations as soon as possible. Specifically, this will benefit nations around the South China Sea the most. For instance, even though there was great short-term economic growth with both Singapore and Malaysia, the U.S. Treasury Department added both Malaysia and Singapore to its most recent watchlist of potential currency manipulators Malaysia and Singapore. These recent developments reveal how ASEAN’s strong ties to the United States can quickly evaporate and that ASEAN nations determine their future trade relations with America. In the second fiscal quarter of 2019, Singapore had a 3.4% annualized GDP contraction, the steepest decline since 2012. This decline in GDP was in part due to the indirect effects of how the trade war caused a decline in global trade and net exports for Singapore. Additionally, Malaysia is another example of a nation whose GDP has fluctuated within the past ten years and could potentially drop off if trade relations are not strong with powerhouse nations such as the United States. As Malaysian Prime Minister Mahathir Mohamad recently said, “ASEAN is quite a big market for the whole world. We don’t want to go into a trade war.” In order to avoid involving themselves further in the U.S.-China trade war, ASEAN must act quickly to solidify their current trade relations that are most profitable. For many nations around the South China Sea such as Malaysia and Singapore, this action means increasing multilateral talks with the United States and actively working towards a trade agreement with America that would be overseen by a neutral third party. Essentially, the recent economic changes in Singapore and Malaysia showcase how the trade war could yield dire long-term consequences for many ASEAN trade-reliant economies close to the South China Sea.
Undoubtedly, there will be major positive and negative consequences for ASEAN as the U.S.-China Trade War progresses. This is why ASEAN must act for its own economic future by working actively with the United States on a trade agreement and solidifying its trade markets within other nations outside of China. In dealing with China alone, ASEAN should not provoke any tension and should try their best to not step on the larger territory that China controls in the South China Sea. This impartiality with China is significant because a recent poll that surveyed more than 800 business leaders at the ASEAN summit shows that “trade tensions between the US and China will have the greatest influence on ASEAN businesses in the next two years.” It is ultimately in the next two years where tensions between China, the United States, and the ASEAN member states have to be resolved because the entire world economy is at stake. As a result, ASEAN must act now primarily with the United States and then with China for the sake of their own economic future.
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