Sino-US Competition: Southeast Asia Retains Agency

Amid fears of being swamped by Chinese imports priced at artificially low levels, many countries, including some in Southeast Asia, have followed the US’ lead in slapping tariffs on Chinese imports. While countries in Southeast Asia are often portrayed as mere pawns on a geopolitical chessboard being dominated by China and the US, some of these countries are actually exercising a fair degree of agency.

These countries are concerned about the potential for excess industrial capacity in China seeping into their markets at artificially low prices. The tariffs are being implemented in the hope of forestalling a tidal wave of dumped products from China.

While few are surprised to see the US sounding the alarm and leading the charge, eyebrows are being raised at the widening range of countries putting China tariffs in place. Brazil, Chile, India, Indonesia, Mexico, Pakistan and Thailand are just some of the countries that have reached similar conclusions as the US have implemented or are weighing tariffs to stem Chinese imports.

Indonesia has announced tariffs ranging from 100-200 per cent on a variety of products including footwear, clothing, and textiles, citing concerns over the impact of Chinese overcapacity on Indonesian Micro, Small and Medium Enterprises (MSMEs). Thailand and Malaysia have increased taxes on low-value online imports — moves intended to stem cheap Chinese goods arriving via e-commerce platforms. Thailand has gone so far as to establish a task force that will meet every two weeks to consider additional measures to “curb the threat of cheap Chinese imports”.

This nascent tilt is a welcome development in Washington, even as it raises consternation in Beijing. In Southeast Asia, questions are being raised over whether countries in the region could be dragged into the US-China trade war and eventually compelled to align more closely with one side or the other. Although those concerns cannot be dismissed entirely, a much higher confidence level in the dexterity of regional leaders is warranted. Amid Sino-US tensions, Southeast Asia retains a fair degree of agency.

Rising concerns in the region over potential Chinese dumping, and a growing willingness to hit China with tariffs is therefore viewed in Washington as a much-welcomed gift.

Apart from tariffs, a number of countries are demonstrating considerable skill in balancing complex and sometimes contradictory economic and geopolitical considerations. While China has become the more important economic partner for most in the region, US engagement is valued as an economic and strategic counterbalance, especially given the escalating territorial disputes between several Southeast Asian countries and China. Recent developments in Vietnam provide a particularly good example of how Southeast Asia can successfully navigate this delicate tightrope walk.

To Lam, the general secretary of the Communist Party of Vietnam and president of Vietnam, has just concluded a fruitful visit to the US for the opening of the UN General Assembly. While in the US, Lam was warmly welcomed by the CEOs of some of the largest American companies, including Apple, Proctor & Gamble, and Blackstone.

At a time when Vietnam is reaping significant benefits from a surge in Chinese production facilities and FDI pouring into Vietnam in response to punitive US tariffs, US companies are increasingly eyeing the Vietnam market as well. With US-China tensions intensifying, having their eggs primarily in the China basket is no longer a prudent strategy. Vietnam — along with other countries in the region such as Singapore and Indonesia — provides an appealing diversification option. Vietnam has stepped up its courtship of US companies, establishing a working group to facilitate cooperation with Apple, as part of its aspiration to execute a dual digital and green transition.

In terms of government-to-government relations, Vietnam is similarly in a favourable position. Convincing the US government to drop its longstanding “non-market economy” designation of Vietnam — an appellation that can lead to higher tariffs — has been a top priority for Vietnamese trade policy. While the US is maintaining Vietnam’s non-market status for now, the tea leaves suggest a change could be in the offing.

Vietnam has been among the countries the US has touted as part of its “friend-shoring” strategy to counter reliance on China. US companies are pointing out the apparent contradiction of trying to position Vietnam as an important part of US supply chains while maintaining the US’ non-market designation for the country, which acts as a powerful disincentive for US investment in Vietnam.

In his meetings with US officials, Lam pressed forcefully for a reconsideration of the non-market designation. The response he received was sufficiently encouraging for Lam to report to investors during his trip that he expects the US to shortly reclassify Vietnam as a market economy. This would constitute a major green light for additional US investment.

It is hard to imagine any monumental economic policy shifts that would justify such a reversal. If an about-face is forthcoming, the driving force will be the elevation in the region’s relevance as a result of the US-China rivalry and shrewd positioning by Vietnam.

US policymakers are acutely aware that US influence has precipitously declined in Southeast Asia over the past decade as China has risen. While the US has mostly fumbled the ball in efforts to strengthen trade relations in the region, China has cemented its position as the primary economic partner through its leadership of trade initiatives such as RCEP and deepening supply chain integration, along with ongoing investments through the Belt and Road Initiative (BRI).

Rising concerns in the region over potential Chinese dumping, and a growing willingness to hit China with tariffs is therefore viewed in Washington as a much-welcomed gift. It creates at least a speed bump to solidifying Chinese preeminence and presents the US with an opportunity to galvanise a response to damaging Chinese trade practices and stem the downward trendline in US influence. This buys significant goodwill for the region in Washington.

China has taken note and is not passively ceding influence to the US. China is undertaking gargantuan regional infrastructure projects that will bind China and Southeast Asia more tightly and deepen the role of the region in China-centric supply chains. Given the strategic opening that mounting apprehension about Chinese dumping provides to the US, there will be a strong incentive for China to moderate its response to any anti-dumping tariffs put in place by Southeast Asian partners, for fear of pushing countries closer to US positions.

The current moment is propitious for Southeast Asia. Risks abound, but skillfully managed rising US-China competition can provide an opportunity for countries in the region to position themselves more favourably in both economic and geostrategic terms. The two big powers might view the region as a chessboard, but the countries of Southeast Asia need not be pawns.

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