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I always look forward to visiting the United States. The tone of the conversations is hard to match and the language of politics is sharp, precise, and full of humor. When I visited in the spring of 2019, however, I did not find much humor. The mood among thought leaders in the business and policy world was somber.
Two topics of conversation dominated: U.S.-China relations and President Donald Trump’s positions and policies — issues those of us from the Association of Southeast Asian Nations (ASEAN) must listen to with a sharp ear.
“We are at war by economic means,” said a Wall Street figure when we talked of U.S.-China relations. “President Trump is using all the economic and security tools the president has constitutionally to deal with China. The powers were always there, but no president has used it in this way before.”
“To demonstrate the extent of U.S. economic power?” I asked. He nodded. “To turn off the lights.”
It is clear there is a consensus today in the United States among Republicans and Democrats, officials and businesses, the media and academics, and on Main Street, on the need to be much tougher with China, particularly in economic matters — but there are differences of opinion on tactics.
There is discomfort in some quarters with the handling of the trade negotiations and the technology war, not because these Americans wish to defend China, but because they believe the approach taken neither achieves the objectives the administration intends nor serves America’s interests in the long run. There are those who want to work toward bringing the two powers together, to find a new basis for cooperation if not a strategic relationship, though this is not expected anytime soon.
Those of us in the “world order” business have been blindsided. This is especially true for those of us in Southeast Asia. For the past two decades, we have been discussing the inevitable changes related to the rise of China, wondering how the emerging power would behave and how the established power would react.
Americans have thought about how they would accommodate the new rising power. But that was all theoretical.
The reality has arrived. China has accumulated sufficient mass in military, economic, and technological power to pose a challenge to the dominance of the United States. As former U.S. Treasury Secretary Hank Paulson, a frequent visitor to and friend of China, said, the U.S. views China now “not just as a strategic challenge, but that the rise of the country has come at the expense of the United States.”
Paulson pointed to the access Chinese companies enjoy in the U.S. and the lack of access facing American companies in China, as well as intellectual property concerns among the list of complaints.
No one anticipated that it would be the established power, the U.S., that would initiate the disruption of the institutions and global frameworks it took a lead in creating and promoting.
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New Geoeconomics
When President Trump entered the White House vowing to put “America First” in his international dealings, allies and friends geared up for substantial change following his campaign rhetoric.
Over the past three years, he has been actively restructuring the international economic order, producing new geoeconomics which will have an impact on geopolitics.
Renouncing multilateralism and the World Trade Organization, President Trump has opted for what The Financial Times sees as “aggressive bilateralism.” He very early took the U.S. out of the Trans-Pacific Partnership. He pressured Mexico and Canada to renegotiate the North American Free Trade Agreement, resulting in the U.S.-Mexico-Canada Agreement (USMCA), that carried few changes but met U.S. demands. He also managed to get South Korea to renegotiate the U.S.-Korea Free Trade Agreement, Japan to enter into bilateral talks, and the European Union, as well. He has levied tariffs on steel and aluminum imports.
When Trump threatened tariffs against Mexico in an effort to pressure his neighboring country to do something about immigration — even though the USMCA was signed — many trade partners watched warily. Is trade negotiation with the U.S. now a continuous exercise? Is there such a thing as a done deal?
Chief among the changes, however, has been the U.S.’s relationship with China. It was Vice President Mike Pence’s speech at the Hudson Institute at the end of 2017 which many analysts read as the administration declaring a new China policy, comparing it to Churchill’s “iron curtain” speech.
This, read with the White House’s National Security Strategy and National Defense Strategy documents, left no doubt where the administration was heading, as both declared China a “strategic competitor.”
In 2018, Trump pushed the trade dispute with China into a trade war, expanding it into a technology war. The U.S. slapped tariffs on $360 billion of Chinese goods. China retaliated with tariffs on $110 billion worth of U.S. goods. Chinese students found delays or denials of visas in certain fields of study. Academic exchange with China slowed down or stopped.
In May 2019, the U.S. barred American companies from using technology from companies that posed a national security risk, and put certain companies on an “entity list” requiring them to obtain special permission to buy American components and technology, including software. This effectively excluded Huawei’s 5G technology from the U.S. market and Huawei and other Chinese companies from getting their technology supply from U.S. companies.
China, for its part, is drawing up an “entities list” which will impact U.S. companies, though details are not spelled out yet. China has also initiated an investigation into FedEx for allegedly redirecting to the U.S. packages sent by Huawei to its offices in China.
The technology war is already breaking up the established supply chains, with U.S. and Taiwanese companies moving out of China to Vietnam, Cambodia, and Malaysia, to offset their risks, though some of this was already happening because of rising costs in China.
Companies are beginning to grapple with the enormity of the implications as it is hard to replicate the speed, scale, talent, and complexity that Chinese suppliers can deliver in technology products. Some U.S. retailers are still maintaining relationships with Chinese firms.
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Dangers of Decoupling
Paulson’s prescient warning of an economic “Iron Curtain” at the Bloomberg Forum in Singapore in November 2018 looks dangerously to be realized. No one wins in a trade war. And as Paulson said: “I cannot see how the international system would endure, when the two countries that comprise some 40% of the world’s GDP and 50 percent of the global growth are working at cross purposes, attempting to disintegrate their economies and contesting the foundations of the rules-based order at every turn.”
It was with this overriding concern in mind that Singapore Prime Minister Lee Hsien Loong spoke at the Shangri-La Dialogue in Singapore in June 2019, urging both sides to resolve their differences. Even short of an outright conflict, the damage for other countries would be enormous and prolonged as we head for “a more divided and troubled world,” Lee said, before asking both sides not to force countries in the region to choose.
Other ASEAN countries also chose to walk the middle path, taking no sides in the great power rivalry in their interventions. Singapore suggested that smaller countries and larger countries should work together, expanding and deepening cooperation multilaterally and plurilaterally to keep the international economic system open.
It was significant that Australian Prime Minister Scott Morrison, a U.S. treaty ally, endorsed Lee’s speech. On Morrison’s visit to the Solomon Islands in June 2019, soon after his re-election, he chose not to play a role in urging the Solomon Islands to retain diplomatic relations with Taiwan over China, stating that it was their sovereign decision.
As tensions mount, countries in the region are carefully defining their own positions, pushing back against pressure to choose sides between the U.S. and China.
Australia subscribes to the U.S.-led Free and Open Indo-Pacific strategy. In Singapore, Morrison promised to push for the conclusion of the Regional Comprehensive Economic Partnership as it represented an open architecture of trade relations in the region. He suggested that while other powers faced challenges, the sovereign, independent countries of the region were still going about doing their business.
We are seeing the emergence, the coalescence of a number of like-minded countries which are coming together on shared concerns that they do not want to be forced to choose too starkly and which want to keep an enabling open trading environment going. They are not organized or institutionalized and could include U.S. allies, friends, and partners of the U.S. and of China. They will do what they can to promote economic growth and a more stable engaged regional environment.
A version of this piece first appeared in The Straits Times in June 2019. It has been lightly edited and republished with permission.
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