Southeast Asia is awaiting the inauguration of Donald Trump with growing trepidation. For the 10 nations and 625 million people that make up the Association of Southeast Asian Nations (ASEAN), a lot is riding on the content and direction of his administration’s trade and foreign policy. As the world’s fourth-largest exporting region, where trade with China is of paramount importance, ASEAN is hopeful that Trump’s actions will bear no resemblance to the rhetoric of his election campaign.
“All of ASEAN is nervous about what Trump’s going to do,” says Mark Beeson, a professor of international politics at the University of Western Australia.
What’s making ASEAN nervous? China and trade, or to be precise, the president-elect’s tweets and pronouncements on those subjects thus far.
On China, Trump said during the campaign that he would impose a 45% tariff on Chinese-made goods in retaliation for its alleged currency manipulation. He has since followed up his anti-China stance with his controversial phone conversation with Taiwan’s President Tsai Ing-wen, and with the cabinet nominations of Peter Navarro, Robert Lighthizer and Wilbur Ross — all well-known China hawks. The titles of Navarro’s books speak for themselves: Death by China and Crouching Tiger: What China’s Militarism Means for the World.
For now, the question that haunts local markets is whether Trump would use the falling yuan as an excuse to start a trade war with China. Christian de Guzman, senior sovereign analyst with Moody’s Investors Service in Singapore, says this would have repercussions throughout the ASEAN region, as would any punitive measures against China.
“All of ASEAN is nervous about what Trump’s going to do.” –Mark Beeson
“Many of the so-called Chinese exports are actually products that are part of this regional supply chain, where intermediate inputs are sourced from different countries in the region and are shipped to China for final assembly,” says Guzman. “If you can imagine an iPhone: It has components from … at least a dozen countries – so if the demand for iPhones from China falls, then I think we will have a ripple effect throughout that supply chain across the region.”
Another issue of concern for ASEAN is the fate of the Trans-Pacific Partnership (TPP). Trump has vowed to withdraw from the international trade agreement on his first day in office. For the signatories of the pact from ASEAN – Brunei, Singapore, Malaysia and Vietnam — this will come as a big blow. Billed as the world’s largest regional trade agreement, involving 12 nations with a total population of 800 million and comprising of 40% of the global economy, the TPP was designed to eliminate tariffs and create a single set of trade and investment rules between member countries.
Seven years in the making, the TPP was held up as the centerpiece of Barack Obama’s “Pivot to Asia” and seen as a signal statement of America’s intention to play a leading role in the economic and security future of the region. But the TPP was not simply a trade deal. With China intentionally excluded, it was widely seen by analysts as part of Washington’s rebalancing move to curb the former’s dominance in the region. Also, the TPP would benefit communist Vietnam, America’s newfound ally, which is contesting China’s maritime claims in the South China Sea.
According to de Guzman, losing the TPP would not only mean less opportunity for ASEAN economies to diversify from China, it also means a lost opportunity for domestic reforms.
Potential Domestic Damage
“The biggest cost will be on the domestic front for the ASEAN nations,” he says. “A lot of the provisions in TPP require structural reforms in these particular countries, some of which are politically unpopular.” Regional leaders, he notes, were using the TPP as a “fulcrum” to lever support for unpopular reforms like liberalizing the agricultural sector in Japan. “In the absence of something larger like the TPP, perhaps those agricultural reforms may never happen.”
ASEAN countries have been further rattled by Trump’s questioning of the post-war regional security frameworks. Japan and South Korea were singled out for free-riding the U.S. regional alliance, with the implication that they should start paying America for providing security for their countries. As Thomas Wright of The Brookings Institution has written, Trump is of the view that “Japan and South Korea must pay for the Pacific fleet and the U.S. nuclear umbrella.”
De Guzman says this has added to the atmosphere of uncertainty pervading the region: “If the U.S. were to back away from some of these treaty-level commitments with regards to the Philippines, Japan and Korea – these are mutual defense treaties that were signed after World War II – I think the logical outcome is [that it] would ramp up defense spending [in those countries].” Countries without the fiscal means to increase defense spending would have to look for alternatives.
The case of the Philippines illustrates the uncertainty, says de Guzman. “Instead of ramping up defense spending, they are actually changing foreign policy. So there’s an easing of tension with China, which would perhaps preclude some of that ramping up of defense spending.”
All of this, says Mauro Guillen, Wharton Management professor and director of the school’s Lauder Institute, “generates uncertainty on two levels. One is American commitment to free trade, and the other is American commitment to the security of East Asia.”
This year marks the 50th anniversary of ASEAN. Founded in 1967 at the height of the Vietnam War and communist insurgencies in Indonesia and Malaysia, the five-member regional association has since grown into a club of 10: Singapore, the Philippines, Thailand, Malaysia, Brunei, Indonesia, Vietnam, Laos, Cambodia and Myanmar. Today, ASEAN is recognized as one of the most successful organizations in the developing world and the premier regional association in East Asia. It is widely acknowledged that the group has been successful in fostering growth and development in a region once ridden by war, poverty and underdevelopment. Not only has it presided over a sustained period of dynamic economic growth, it has also kept the peace.
The question that haunts local markets is whether Trump would use the falling yuan as an excuse to start a trade war with China.
Ooi Kee Beng, deputy director of the ISEAS-Yusof Ishak Institute in Singapore, has been observing ASEAN’s progress for nearly three decades. “As a security network, [ASEAN] has provided regional peace,” he points out. “As a forum for its many member countries to exert international pressure and exercise influence, it has worked as well.”
Despite its many achievements, skeptics contend that ASEAN has failed to develop into an organization with any power and influence, and that its insistence on non-interference in each nation’s affairs – the so-called “ASEAN way” – has rendered it toothless on issues concerning human rights, political reforms and, more recently, the rise of Chinese power.
“Over the last decade, China has taken an aggressive stance on claims in the South China Sea,” Kee Beng said. “This has put a lot of strain on ASEAN members and they have found it extremely difficult to stay united on this issue. The Philippines’ decision to seek a court decision internationally has been a legal