How does Asean play its cards in the trade war era?

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The event of the year would definitely be the US-China trade war that sent shockwaves across the globe. From the last APEC Summit to the recently wrapped up G-20 Summit, the trade war between the two largest economies remained the focus of major global media.

For Asean, which is not a party directly affected by this trade war, our approach continues to be cautiously optimistic. We are certain the region will reap some potential benefits once the US-China trade war is in full swing.  Unless both Washington and Beijing abruptly lift their respective tariff barriers.

As the US-China trade war starts to impact world trade, diversification of other markets away from the current trade flow is the option.






ASEAN-CHINA

As one of the most promising markets, Asean has gained prominence for countries not enjoying significant trade with the bloc. This is not the only reason why the once low-profile partners are expressing unprecedented interests in Southeast Asia.

Economy wise, the Asean-China relations has by far, earned the most substantial (quantitative) returns deriving from the free trade agreement between Beijing and its Southeast Asian counterparts.

By contrast, Asean’s economic relations with other external partners, especially Australia, India, UK and Canada, are still largely untapped. In the latter two cases, it is virtually unexplored to start with. Such a state of affairs means there's a lot of room for the four partners to strengthen trade ties. With this, they can also define their overall economic relations with the region.

Whether for the purposes of tapping the 650-million Southeast Asian market or the strategic needs of countering Chinese influence in the region, there is no question that there is an Asean rush staged by these external partners recently. For instance, Australia is bent into taking its relations with Asean into greater heights. It is engaging the Southeast Asian bloc at a level unlike before.

With the Indo-Pacific strategic push by its Quad allies (the others are the US, Japan and India) to counter China’s Belt and Road Initiative (BRI), Canberra has for the first time, pledges to establish a regional financing body to fund infrastructure development projects in the 10-member bloc. That aside, Canberra is also examining the proposal by Indonesian President, Joko Widodo, to join Asean.  A development beyond comprehension considering the differences of Australia’s cultural fabric with that of the rest of SEA.

The same goes to India where Prime Minister Narendra Modi positions Asean as the epi-centre of the Indo-Pacific strategy. It is also part of the Look East Policy.  The two plans meant to counter China’s incessant influence in Southeast Asia. To this, Modi has been clear in highlighting its cultural kinships with most Asean countries. The potential debt traps of Chinese financing and the freedom of navigation in the contentious South China Sea are of concern.

ASEAN-PT

 

INDIAN RUSH






In terms of economic cooperation, Modi is pushing for Asean-India connectivity. In line with the rising Fintech companies (from both sides) under a single platform in Singapore. Of course, this is on top of realising the full potential of existing sub-regional economic cooperation frameworks. India-Asean FTA and Asean-India Cooperation Fund are the tangible products of bilateral economic ties.

As opposed to Australia and India, both the UK and Canada have more economic than strategic interests in Asean. They wish to better their trade ties with Asean. In order to offset its post-Brexit negative impacts, the UK has pledged to ‘return’ to a region where it was one of the colonial powers. But London is eyeing more on what would be the fourth largest market by 2030.

The integrative Asean market comes to mind. This explains why they are actively dispatching various trade delegations to Asean countries. The aim is to improve its existing trade links with the latter. The main uncertainty, however, is whether Britain is seeking to re-ignite its security ties with former colonies of Singapore and Malaysia?

This will be through the Five Power Defence Arrangement or FPDA. Or is it seeking a free trade deal with Asean collectively or both? By all means, any of these moves have the potential to chart London’s future economic relations with Asean.

As for Canada, the Trudeau administration is also searching for a free trade agreement with Asean as part of its plan to tap into the latter’s fast-growing markets and diversifying away from its trade dependence on the US.

The event of the year would definitely be the US-China trade war that sent shockwaves across the globe. From the last APEC Summit to the recently wrapped up G-20 Summit, the trade war between the two largest economies remained the focus of major global media.

For Asean, which is not a party directly affected by this trade war, our approach continues to be cautiously optimistic. We are certain the region will reap some potential benefits once the US-China trade war is in full swing.  Unless both Washington and Beijing abruptly lift their respective tariff barriers.

As the US-China trade war impacts world trade, diversification of other markets away from the current trade flow is the option.

As one of the most promising markets, Asean has gained prominence for countries not enjoying significant trade with the bloc. This is not the only reason the once low-profile partners are expressing unprecedented interests in Southeast Asia.

Economy wise, the Asean-China relations has by far, earned the most substantial (quantitative) returns deriving from the free trade agreement between Beijing and its Southeast Asia counterparts.

PLAYING THE CARDS






Considering all these developments, Asean is now an indispensable partner for countries looking to fulfil their economic, strategic interests in the region. The question now would be: Given such a complicated situation, how does Asean play its cards?

For one, there should be two principles for adherence among Asean member-states dealing with external partners. Foremost, Asean members should maintain the bloc’s centrality. They should not resort to the game of choosing either the US or China camps individually or in a group.

Cambodia’s Hun Many recent revelations unveil the dangers that Asean may run into, especially in terms of unity. There is the risk of being sucked into the great power competition between the US bloc or China. Any move ending Asean’s status as a buffer player (or neutral party), would devastate the Southeast Asian grouping.

Second, Asean should capitalise on opportunities provided by these four external partners. They offer entry to North American, Oceania and Indian sub-continent markets for their export goods and investments. This would diversify Asean’s trade into these new markets and prevent over-dependence on any market.

Moreover, with these two largest economies impacted by mutual erection of import tariffs, it would be risky to continue postulating both powers as major markets, without clear comprehension of the trade war’s fluctuations.

As famously cited by Singapore’s Prime Minister Lee Hsien Loong: “If we are putting too many eggs in one basket, we will end up having fewer eggs to play with.” This is the situation which Asean needs to avoid in the long-run.

Heading toward the end of the year, Asean should actively evaluate the geopolitical competition and trade war constraints. This is how it can expand the bloc’s trading spaces in the years ahead.

The recent rush by four external partners to engage Asean only heightens the fact SEA is too vital to neglect. With such a trend recognised, it is time for Asean to play its cards an independent power, analysts believe.

Anbound Malaysia

Anbound Consulting (Anbound) is an independent Think Tank with the headquarter based in Beijing. Established in 1993, Anbound specializes in public policy research, and enjoys a professional reputation in the areas of strategic forecasting, policy solutions and risk analysis. Anbound Research Center (Malaysia) is located in Kuala Lumpur. The Center is mainly engaged in ASEAN regional economy and policy research. It also advises Malaysian government agencies, Chinese companies in Malaysia and Malaysian companies in China. Anbound has established close research partnerships with Malaysian top think tanks and research institutions.

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