EAF editors
The two most important people in ASEAN right now can’t be accused of
not understanding the crucial function that the group plays as a
platform for collective middle-power diplomacy. Speaking at a media
conference after his meeting with Malaysian Prime Minister Anwar Ibrahim
in Langkawi last week, Indonesian President Prabowo Subianto declared that
‘only via unity among the ASEAN countries, only with good cooperation
between us, will our voices be heard, will we be given consideration by
powers far bigger than us’.
The only ‘bigger power’ Prabowo saw fit to mention was the European
Union, perhaps understandably, given that both Malaysia and Indonesia
are locked in a longstanding dispute about the impact of proposed EU sustainability rules on their palm oil industries.
Though both leaders were too diplomatic to say so, a wave of green
regulations emanating from Brussels might be the least of Southeast
Asia’s problems when it comes to the economic impact of extra-regional
policy developments.
As Mari Pangestu and Shiro Armstrong warn in this week’s lead article,
‘Southeast Asian domestic markets are about to be hit by a tsunami of
cheap Chinese goods, unable to enter the United States if US President
Donald Trump follows through on his earlier promise of 60 per cent
tariffs on all Chinese imports’. At this stage Trump has announced a 10
per cent tariff hike on Chinese imports.
The regional effects of the macroeconomic imbalances
in the Chinese economy were causing anxiety among Southeast Asian
policymakers well before Trump’s re-election in November 2024, which
confirmed the re-escalation of his trade war with China. Throughout
2024, a range of anti-dumping measures
were taken against Chinese products by ASEAN governments, prompted by
the lobbying of local business. The most dramatic was Indonesia’s
proposal for a wide-ranging 200 per cent tariff on Chinese goods which
is so far yet to materialise. The bankruptcy of the country’s biggest
textile manufacturer, Sritex, sparked an excuse, if not a valid reason,
for calls from industry groups and politicians for greater protection.
In Indonesia and elsewhere, pressure will continue to grow in 2025
for governments to ‘save’ local firms from something they can portray —
not wholly unreasonably — as an artificial shock born of the distortions
created by Trump’s re-escalation of the US–China trade war and
distortionary Chinese industrial policy. For Southeast Asian
politicians, the immediate and concentrated impact of the Chinese export
boom on local industries and the jobs they sustain looms larger than
the more diffuse anti-inflationary effects of cheap Chinese consumer
items, or the longer-term productivity benefits of local firms’ access
to Chinese capital goods.
The risk is that ‘[t]ariffs tend to be contagious’, as Pangestu and
Armstrong warn. ASEAN governments need a coordinated policy response
which respects existing WTO rules in order to avoid a free-for-all lurch
towards protectionism that will ultimately close off regional economies
to the benefits of trade with China. ‘Acting together, ASEAN can
exercise more effective agency and leverage globally’.
One crucial safeguard that ASEAN could lend collective support to is
the Multi-Party Interim Appeal Arbitration Agreement (MPIA), the
workaround to the disempowered WTO dispute settlement process. The
Philippines and Singapore are currently the only ASEAN parties to the
MPIA, emphasising how much low hanging fruit there is for Southeast Asia
to show a commitment to defending the rules-based trading system.
Meanwhile, Southeast Asia will have enough on its plate dealing with
Washington itself, where Donald Trump has signalled that the coercive
application of tariffs against friend and foe alike will be an even more
central part of US economic policy tactics going forward than it was
during his first term. The list of countries being named and threatened
with coercion continues to grow and there seems to be no major faction
within the administration that might steer the president towards
moderation — the adults have left the room.
In the context of ASEAN’s persistent trade surplus with the United
States, countries in the region can reasonably expect to attract
punitive US tariffs if and when Trump concludes that the significant
growth in Southeast Asian exports to the United States is down to
Chinese firms using the region to bypass the anti-China tariff wall.
As Jayant Menon emphasises,
‘Trump is likely to target firms based on their nationality rather than
their location’, with the idea being that ‘Chinese firms would no
longer invest in Southeast Asia just to bypass tariffs’.
The ASEAN policymakers who take a glass-half-full view of the
potential benefits from trade diversion to the region that flows from US
efforts to decouple from China should be very careful of what they wish
for. Nobody wins a trade war, and Southeast Asia has a duty to deploy
the instruments it has to push, if not for world trade peace, at least
for a ceasefire.
The EAF Editorial Board is located in the Crawford School of
Public Policy, College of Law, Policy and Governance, The Australian
National University.
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