Business will boost US ties with ASEAN even under Trump
American president's bilateral deals partly compensate for his retreat from multilateralism
It has become a cliche to note the ongoing power shifts in geopolitics and geoeconomics. China is on the rise with such launch pads as the Belt and Road Initiative, the Asian Infrastructure Investment Bank, and the Regional Comprehensive Economic Partnership. Meanwhile, the U.S. appears to be in relative decline as it withdraws from landmarks of international cooperation such as the trade-liberalizing Trans-Pacific Partnership and the Paris Climate Agreement. The extent of these shifts is disputed but undeniable against the backdrop of a broad unraveling of the 70-year-old liberal international order.
Nowhere will these fluid power dynamics be more on display than during the upcoming summit season among Asia-Pacific leaders, anchored around the 10-member Association of Southeast Asian Nations. In his first official trip to Southeast Asia, after key stops in Japan, South Korea and China, U.S. President Donald Trump will be descending into the most consequential global axis of security and prosperity. He must learn to engage and navigate with caution and nuance in an effort to balance Southeast Asia's geopolitical interests with America's geostrategic aims. North Korea certainly poses an existential threat to the U.S. and Northeast Asia but Trump will likely find in the long term that there is much more to Asia than North Korea.
To frame the Trump visit to Southeast Asia, it is instructive to recall how his predecessor, Barack Obama, dealt with the region. Respected for his intellect and international outlook, Obama staunchly supported the rules-based global order that was constructed after the Second World War. Accordingly, watershed agreements on climate change, de-nuclearization and regional trade liberalization came into effect during his tenure. Obama hosted and attended top meetings with Southeast Asian leaders more than any other U.S. president. His "pivot" and "rebalance" strategy showcased Southeast Asia, partly because of his personal affinity with the region where he spent part of his boyhood.
But ironically, Southeast Asia was effectively "lost" to China during the Obama years. From 2012, China constructed a string of artificial islands in the South China Sea and stationed military installations and other assets there. Despite an unfavorable international arbitration ruling in July 2016 Beijing has kept possession of what it has taken under its control. Obama stood aside, and ASEAN governments had no choice but to acquiesce and appease China. Beijing has also succeeded in dividing ASEAN by picking off member states through bilateral deals. The authoritarian resurgence in the region, from Thailand and Cambodia, to Malaysia and the Philippines, has further played into Beijing's hands, because Obama's emphasis on democracy and human rights over geopolitical expediency alienated some ASEAN governments.
President Trump evidently has a different geostrategic playbook, prioritizing interests over values. With apparent distaste for -- and distrust of -- regionalism and multilateralism, Trump takes the bilateral road whenever he can, and even goes for a unilateral approach whenever he can get away with it. This explains his efforts to renegotiate the North American Free Trade Agreement and the Iran nuclear deal, and the U.S. departure from the TPP and the UNESCO.
On a bilateral basis, he has hosted a flurry of meetings with the leaders of Vietnam, Malaysia, Thailand, and Singapore at the White House since May. Each offered multibillion dollar pledges to buy more American goods and services, such as Boeing aircraft and coal (in Thailand's case), and plans to invest more in the U.S. Such a role reversal, from the times when the U.S. was the aid donor, investor and consumer when it came to Southeast Asia, underlined the relative geoeconomic advance of developing economies and Trump's fixation with U.S. trade deficits with 16 countries, led by China and including four ASEAN members (Vietnam, Malaysia, Thailand, and Indonesia).
Somewhat unwittingly, Trump's transactional bilateralism has enabled the U.S. to re-engage with the region and claw back its diminished influence in Southeast Asia. This is a welcome turnaround for regional states that accommodate and concede to Beijing only when they have no better choice. With the U.S. back in the regional mix, with its role reinforced by middle powers like Japan and Australia, ASEAN ends up with more geopolitical balance. When Trump arrives in Vietnam and the Philippines for the Asia-Pacific Economic Cooperation and ASEAN-U.S. summits, together with a host of associated meetings on the sidelines, he is unlikely to be a champion of regionalization, especially if he decides to go home early by one day and omit the 18-member East Asia Summit, which comprises Northeast and Southeast Asian countries together with Australia, New Zealand, India, Russia and the U.S.
Such a move would be par for the course for Trump. Naturally, skipping the EAS would undermine ASEAN's central role as the broker and conductor of what remains of Asia's regional order. But, as long as Trump ups his bilateral game with regional leaders to counterbalance Beijing's recent dominance, his Southeast Asian visit will be seen as yielding strategic importance and worth all the controversy it will likely generate. Moreover, this presidential journey to Southeast Asia is unlikely to be Trump's last in view of the region's economic rise.
Southeast Asia's market of 635 million consumers and its $2.6 trillion gross domestic product has been the world's fastest growing region, with a regional growth trajectory in the 5% range. ASEAN is the fourth-largest trading partner of the U.S. As bilateral trade has tripled over the past two decades, the U.S. is the fourth largest investor in ASEAN, with more than $226 billion parked in the region, exceeding all other U.S. investment in the rest of Asia, according to the ASEAN Secretariat. On the flipside, ASEAN investment in the U.S. stands at $27 billion, after increasing 28% per year since 2004.
Southeast Asia's outward foreign direct investment (OFDI) is limited but has been expanding robustly. From 0.45% of total world OFDI stock in 1990, Southeast Asia's share rose to 3.9% in 2016. Among developing economies, the share of Southeast Asia's OFDI stock grew from 6.5% in 1990 to 17.4% last year.
This growth is startling when compared with other emerging areas. In 1990, Latin America accounted for 39.7% of the OFDI from emerging economies, while Asia represented 46.4%. In less than three decades, according to the U.N. Conference on Trade and Development, Asia has become the main OFDI engine, accounting for 85.4% of total OFDI from developing economies, while the share of Latin America has fallen to 9.8%.
Within the region, intra-ASEAN investment has increased markedly and has become the top source of investment in the region, accounting for 18.5% of total investment flows, even though intra-ASEAN trade has stayed steady at 25% of total trade flows. In other words, ASEAN economies have been trading mostly with partners outside the region but they are investing more among themselves, paving the way for greater regional economic integration.
So Trump will have a lot to work with and much to think about as he pursues his transactional approach. ASEAN as a motley regional grouping may be a geostrategic hassle for a White House occupant steeped in the "art of the deal." But in the longer term, ASEAN represents a good business opportunity for the U.S. While the grouping needs America for regional security maintenance and balance, the U.S. is undoubtedly eager to partake in Southeast Asia's ongoing prosperity. Not only has ASEAN been a good commercial partner for the U.S., intra-ASEAN investment and trade patterns mean the region will keep growing regardless of how ugly and nasty the domestic politics of its disparate regimes becomes. This, more than geopolitical huff and puff, should keep Trump coming back and staying engaged with Southeast Asia.
Pavida Pananond teaches International Business at Thammasat University, and Thitinan Pongsudhirak directs Chulalongkorn University's Institute of Security and International Studies in Bangkok.