VIEWPOINT

ASEAN’S RESPONSE TO US-CHINA TRADE WAR

WHY ASEAN SHOULD BE ON THE FENCE AND ON OUR TOES

RACHEL KWEK

Both the United States (US) and China are important economic partners of ASEAN and their ongoing disputes have deeply impacted the region. Professor Kishore Mahbubani, Distinguished Fellow, Asia Research Institute, National University of Singapore (NUS), shared his insights on how ASEAN should respond to the challenges that this conflict brings, as well as the opportunities that arise from it, at the ISCA Financial Reporting Committee-ASEAN Federation of Accountants (AFA) Financial Reporting & Business Conference 2019. The event, which took place in Singapore on 26 November 2019, marked the 21st AFA Conference hosted by ISCA.


Professor Kishore Mahbubani, Distinguished Fellow, Asia Research Institute, NUS, sharing insights into how ASEAN should respond to the escalating tension between US and China 

The Conference gathered 180 participants comprising delegates and business leaders from the 10 ASEAN countries as well as senior members of the Singapore accountancy profession. Everyone was all ears as Prof Mahbubani began, “No matter where you live, your lives will be affected, in one way or another, by the largest geopolitical contest probably ever in human history that is now playing out between the US and China. It’s going to shape you.”

ORIGINS OF THE TRADE WAR

As the superpowers continue to be embroiled in a trade tussle that has grabbed headlines the world over, you might have wondered why it has even happened in the first place. To put this in perspective, Prof Mahbubani said it is important for us to be aware that the ongoing dispute between US and China is a multi-dimensional contest covering economic, political, military and cultural aspects. The strange thing about this dispute, he said, is that it is both inevitable and avoidable, and the fact that an emerging player threatens to overtake the world’s number one power is bound to prompt resistance from the latter. Such turbulence seems to be mandated by a sort of geopolitical iron law and historians will think it is normal, he explained. As to why the US-China trade war started in 2018, he candidly said it is partly the result of events like the election of Donald Trump as US President.

In his view, President Trump’s “very strange view of economics” seeded the trade war. While trade is generally seen as something good that will bring about a win-win situation, the US leader regards it as a zero-sum game; moreover, he believes that trade deficits are bad and trade surpluses are good. Prof Mahbubani explained that unfair trade practices of one country do not necessarily lead to trade deficits in another country – which President Trump seems to attribute as the cause of US’ trade deficits. He highlighted, “The US is experiencing a trade deficit due to structural imbalances between savings and investments, so even if the country brings its trade deficit with China to zero, its overall trade deficit will not change.” Why does everyone in America – including the Democrats who used to oppose anything President Trump does – support the idea of going against China though it “violates plain common sense in economics”? Something fundamental has changed, the veteran diplomat explained.

In the past, there were instances where previous US administrations had wanted to hit China hard for various reasons but were dissuaded by the American business community, which had interests there. But this did not happen when President Trump launched the trade war in 2018. Prof Mahbubani pointed out that this is because China has alienated the American business community – “even if they are making money in China, they resent the fact that they are getting their arms twisted: they have to share some of their technology, get local partners and there is often theft of intellectual property”.

Prof Mahbubani said even experts can’t tell what the US hopes to achieve by engaging in a trade war. In view of President Trump’s economic reasoning, he said one plausible objective might be to reduce the US trade deficit in China. That is America’s proclaimed goal although China had compromised in initial negotiations. Another possible objective is to decouple the US and China economies as there are “some people in the Trump administration (who take) a long-term strategic view and believe the only way to stop China from becoming number one is to decouple the US economy from the Chinese economy”. However, judging from how trade talks between the two countries have developed so far, Prof Mahbubani said, “We’re not sure what game is being played.”

OPPORTUNITIES AND DANGERS

Even though some experts say a full-scale military faceoff is more likely than not, Prof Mahbubani assured the delegates that there will be no war, explaining that both countries would stand to lose should they engage in a nuclear showdown. Despite this, he emphasised that “there will be dangerous moments and unfortunately for us, some of the most dangerous moments will take place here in Southeast Asia”. In his book, The ASEAN Miracle: A Catalyst For Peace, published in 2017, he anticipated the US-China conflict and pointed out how ASEAN will be badly affected. ASEAN – with its success in providing regional stability and unique position to bring together various countries – plays a critical role in how the US-China conflict plays out and is therefore vulnerable.

Undoubtedly, both powers will put pressure on individual ASEAN countries. Some ASEAN countries are closer to the US while others are closer to China; ASEAN will be caught in a conundrum if its member states are forced to make a choice between the two superpowers. Prof Mahbubani gave the practical example of deciding which 5G wireless technology for digital cellular networks to go for among the different providers, commenting that “ASEAN countries are going to have a hard time”.

At the same time, there is also a massive opportunity for ASEAN because both the US and China will want to strengthen their presence in ASEAN countries for different reasons. Just as the US succeeded in the first Cold War against the Soviet Union as it had mounted a massive containment policy, it may want to use ASEAN to contain China now.

Global supply chains are shifting, American investment is being diverted to ASEAN countries, and Vietnam has benefited the most so far. On the other hand, to make sure ASEAN does not join the US containment policy, China will be very generous. It is investing more in the region, including through infrastructure projects under its Belt and Road Initiative (BRI), which has brought many opportunities to the region.

Realising that “one way to maintain Chinese influence in this region is to keep signing free trade agreements”, China had initiated the Regional Comprehensive Economic Partnership (RCEP)  ̶  the world’s largest free trade agreement that involves 16 countries (the 10 ASEAN countries as well as Australia, China, India, Japan, New Zealand and South Korea) that make up nearly half the world’s population and one third of global gross domestic product, according to a Reuters report. (Note: India is not joining in the first round.) In contrast, the US, the traditional leader in free trade agreements, is walking away from such agreements. Prof Mahbubani said the geopolitical space for US has shrunk but for China, it has expanded.


ISCA Advisor Dr Gerard Ee (left) and Prof Mahbubani addressed queries at the Q&A session

RIDING THE TIDE OF THE TRADE WAR: STRATEGIES THAT ASEAN SHOULD ADOPT

How then can ASEAN countries navigate the challenges and continue to engage and work with both the US and China? There are no simple black-and-white answers; nor is it easy to say who is “right” or “wrong”. Therefore, “it is important for us to be seen as objective and not supporting one side,” Prof Mahbubani said, adding that ASEAN should remain friendly to both the US and China. He elaborated, “ASEAN has done well in this regard so far by launching its own ASEAN Outlook On The Indo-Pacific, which emphasises the centrality of ASEAN in the region and is independent of both American and Chinese strategies towards the region. Singapore Prime Minister Lee Hsien Loong has also said at the Shangri-La Dialogue that ASEAN countries do not want to take sides.” Additionally, Prof Mahbubani said ASEAN could take advantage of the opportunities presented by the US and China. Being a region of steady economic growth, ASEAN is of value to both countries, providing American businesses with an important market and a congenial environment to operate, and presenting immense investment opportunities for China’s BRI.

However, despite these opportunities, ASEAN countries need to be careful and very mindful “of the more volatile economic conditions created by the trade war” and “manage both powers delicately”.

Another key strategy all leaders in ASEAN should adopt is “to develop sophisticated and nuanced views of the major geopolitical situation and see how they can use these to their advantage to enhance their own interests”, Prof Mahbubani said. One way ASEAN has done this is to be part of RCEP. He reiterated the criticality for leaders of ASEAN to understand that this geopolitical contest is a very complex one with different dimensions. Apart from the economic dimension of the trade war, there are also deeper driving forces and misunderstandings at play. On the political front, the US has become unhappy with China because its engagement policy has not led to China becoming more democratic. On the military front, proxy wars may occur and China’s neighbours will have to be careful. On the cultural front, America’s fear of the “yellow peril” is also driving irrational behaviour towards China. Finally, the US has become addicted to primacy – Americans cannot conceive being number two. Therefore, in order to develop nuanced views of the geopolitical contest, ASEAN leaders need to be sensitive to what issues are of deep concern to the US and China. Prof Mahbubani will cover all these issues in his forthcoming book, Has China Won?.


ABOUT PROFESSOR KISHORE MAHBUBANI

Prof Kishore Mahbubani is one of Singapore’s foremost experts in the field of international relations. As a diplomat, he worked in the Singapore Foreign Service from 1971 to 2004 during which he was posted to Cambodia, Malaysia, Washington DC and New York. He was twice Singapore’s Ambassador to the United Nations (UN) and served as President of the UN Security Council in January 2001 and May 2002. He was Permanent Secretary at the Ministry of Foreign Affairs from 1993 to 1998 and was conferred the Public Administration Medal (Gold) by the Singapore government in 1998.

Prof Mahbubani is now a Distinguished Fellow at the Asia Research Institute, NUS, Singapore. He joined academia in 2004, when he was appointed the Founding Dean of the Lee Kuan Yew School of Public Policy, NUS, a position he held till 2017. He was a professor in the Practice of Public Policy from 2006 to 2019. In April 2019, he was elected an honorary international member of the American Academy of Arts and Sciences, which has honoured several distinguished thinkers.

Prof Mahbubani has published nine books including Can Asians Think?, Beyond The Age Of Innocence, and Has The West Lost It?.


Rachel Kwek is a contributing writer.