Caught in the Sino-US Crossfire: ASEAN Needs to Act as One

The use of economic tools to pursue national interests is not new. In the 21^st century, new waves of such tools, from unlawful economic coercion to legal but harmful trade remedies, have played a key role in the strategic competition between China and the US. Unlike the rivalry between the US and the former Soviet Union, Sino-US strategic competition is distinct in that the US and China are economically highly interdependent. This makes economic tools to weaponise economic interdependence essential and convenient to use. In some cases, legal trade remedies to address unfair trade practices and national security issues have also become valid tools of economic coercion.

China’s aggressive pursuit of national competitiveness and the US’s rising populism at home (combined with the fear of losing its number one position) have motivated both countries to actively utilise economic tools. This is done for the purpose of achieving national competitiveness, safeguarding national security interests, creating jobs at home, and winning the technological race.

In trade, the US has increasingly restricted Chinese access to high technology with commercial and strategic uses. Recently, Washington added more Chinese businesses, organisations, and individuals to the US Entity List, potentially disrupting China’s go-global strategy. The US also utilises tariffs under Section 232 of the Trade Expansion Act of 1962 and Section 301 of the Trade Expansion Act of 1974 to limit Chinese products’ access to the American market.  The US Entity List and Sections 232 and 301 are legal trade remedies that have been used responsibly in many instances. Some of the recent trade actions using these instruments were, however, veiled attempts at exercising economic coercion under the guise of national security and addressing unfair trade practices. Sino-US rivalry has therefore blurred the line between economic coercion and legitimate uses of trade remedy laws.

In response to the US and its allies’ trade actions, China has been stepping up its industrial and technological self-sufficiency.  It recently banned Chinese technology companies from buying Nvidia’s AI chips — an attempt to accelerate technological self-sufficiency.  It has also been leveraging its stockpile of processed rare earth minerals to pressure the US, which needs these minerals for high-tech applications, such as clean technology, medical equipment and aerospace/defence products. China accounts for around 90 per cent of global production of such minerals.  

Foreign direct investment (FDI) has been utilised as a tool of coercion, intelligence gathering, and stealing corporate secrets. Increased Chinese investments in US high technology resulted in increased risks of intellectual property theft and espionage activities. Consequently, the US imposed more regulatory restrictions on Chinese investments in critical sectors of its economy, including through the Foreign Investment Risk Review Modernization Act (FIRMA) in 2018.

In finance, the US and EU have employed various financial sanctions against adversarial countries such as Russia, Iran and Afghanistan. These include SWIFT disconnections, currency access blocks, asset freezes, and financial transaction bans. Between 2000 and 2021, financial sanctions originating in the US ballooned by over 900 per cent, initially triggered by the 9/11 attacks. Weaponised finance has led to increased demand for alternative transaction systems outside the control of the US and the dollar-dominated financial system.  

In technology, the US has imposed sanctions to block China’s increased engagement with the global subsea cable infrastructure. The US’ digital policies, especially on anti-trust and data protection, have become new bargaining chips as countries seek to wrap up trade deals with Washington.        

Various forms of US and Chinese economic coercion and manipulation have either targeted ASEAN countries directly or affected them indirectly.

The ongoing strategic competition between the world’s two biggest economies provides opportunities and challenges for Southeast Asia.  In the semiconductor sector, for example, ASEAN became a major investment beneficiary from the “China Plus One” strategy in the semiconductor sector. Chip giants such as Intel, Micron, Infineon and Samsung have pumped significant fresh FDI into the region; as a result, ASEAN’s share of  US chip imports has increased as China’s share declined.

The region, however, remains exposed and fragile in the intensifying trade and technological war. Depending on the outcome of the ongoing tariff negotiations with the Trump administration, China’s position relative to some ASEAN countries could be better compared to its relative position under Trump’s first administration, when Trump mostly attacked only China. This may mean that, for example, foreign investment in semiconductors may stay rather than leave China.

Various forms of US and Chinese economic coercion and manipulation have either targeted ASEAN countries directly or affected them indirectly.  The US has threatened many ASEAN countries with a 40 per cent transhipment tariff, but it is still unclear what constitutes “transhipment”. In the technology sector, there are increased geopolitical pressures to choose between the American and Chinese technological ecosystems (for example, subsea cables, and 5G networks). This will have long-term consequences on ASEAN countries’ economic and technological trajectories.                

The region has adopted a hedging strategy through multi-alignment, “flexible multilateralism”, and the signing and upgrading of various free trade agreements with third countries. In response to Trump’s reciprocal tariffs, ASEAN has committed not to retaliate but to deepen regional economic integration and affirm support for a rules-based multilateral trading system. Co-chaired by Indonesia and Malaysia, the region has convened the ASEAN Geoeconomic Task Force to coordinate the grouping’s approaches.    

There is also a realisation of the need to facilitate greater intra-ASEAN cooperation. A case in point is the ASEAN Framework on Integrated Semiconductor Supply Chain (AFISS). Under AFISS, ASEAN countries aspire to build a shared regional semiconductor R&D hub or testing lab while further harnessing individual economies’ strategic specialisations and complementarities.    

ASEAN, however, needs to think beyond short-term strategic responses. The global economic order is reconfiguring, and ASEAN, as the world’s fifth-largest economy, can play a greater role on the international stage in helping shape the new global economic order. The grouping should address the shift in the balance of economic dominance, economic vulnerabilities due to highly interdependent supply chains, and the impacts of technology and climate change on many aspects of lives and livelihoods.

Finally, ASEAN member states must maintain their unity and harmony to weather all these challenges. The pressure to take sides in the geopolitical crossfire is high: the making of such choices by ASEAN states can be divisive. It will be more effective to use ASEAN as a platform to address various forms of economic coercion emerging from the US-China rivalry than for countries to go it alone or deal with it bilaterally.  Moreover, embedding ASEAN-led initiatives like the Regional Comprehensive Economic Partnership will be vital in helping ASEAN build bigger coalitions to shape the new global economic order to its advantage.

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