BY: TAWNNI CASTAÑO DE LA CUESTA
The trade war between the U.S. and China has been at the forefront of political and economic debates. The trade war began early March and has resulted in the U.S. putting high tariffs on Chinese Industrial and technology export products, whilst China has put high tariffs on U.S. energy and many other export products. In doing so, the trade war has caused serious economic and political tensions between the two countries. Largely neglected, however, is the impact of the trade war on the manufacturers of these export products, namely the member states of the Association of South East Asian Nations (ASEAN).
ASEAN as a regional organisation works towards economic, political, and security cooperation as well as regional stability. One of ASEAN’s policies relates to the economic integration and development of the region. In 2015, a significant effort was made towards this goal through the creation of the ASEAN Economic Community. In the same year, the ASEAN Economic Community Blueprint 2025 was developed, which aims to achieve the following five goals by 2025: A Highly Integrated and Cohesive Economy; A Competitive, Innovative, and Dynamic ASEAN; Enhanced Connectivity and Sectoral Cooperation; A Resilient, Inclusive, People-Oriented, and People-Centred ASEAN; and A Global ASEAN.
The trade war hampers ASEAN’s efforts to achieve the ASEAN Economic Community Blueprint 2025, as the export products ASEAN member states produce are central to the trade war. China is ASEAN’s largest trading partner, of which the main export goods are electrical equipment, computers and machinery. The U.S. is ASEAN’s fourth largest trading partner to which it also exports electrical equipment, computers and machinery. The export of these products to China and the U.S. represent approximately 20 percent of the ASEAN’s total export. If the trade war between China and the U.S. causes the production in these countries to stagnate, the demand for ASEAN’s export products to both countries would inevitably decline. This would be a tough hit to ASEAN’s economic integration and development efforts, as both economic growth and momentum would be lost.
This is especially true because the trade war also threatens the economic progress of individual member states of the ASEAN. It is predicted that for every 10 percent decline in China’s exports to the U.S., the growth rate of many ASEAN member states’ economies will reduce by approximately 1.1 percent, whilst China’s would only decline by 0.3 percent. Their economies are at risk because South East Asia as a region is heavily reliant on global export. Some countries, such as Indonesia and the Philippines, may be able to counter the loss of global export to some extent, as they have large domestic markets. However, countries such as Singapore and Malaysia are unable to do so because their economies are particularly reliant on export, especially to the U.S. and China. The loss of export to the U.S. and China would, therefore, not only hurt the achievement of the goals listed in the ASEAN Economic Community Blueprint 2025, but also hurt the individual economies of ASEAN member states.
The solution for ASEAN may lie in the Regional Comprehensive Economic Partnership (RCEP) the ASEAN has been negotiating over the last years. The RCEP as a counterpart to the Trans-Pacific Partnership, aims to consolidate the ASEAN’s bilateral Free Trade Agreements with Australia, China, India, Japan, New Zealand and South Korea. The RCEP would be the world’s largest trade bloc, which in 2016 accounted for a population of 3.53 billion people, a GDP of $23.8 trillion and a GDP per capita of $6,759. Achieving this multilateral trade deal would therefore provide all participating countries, including China itself, with a large export market, which could mitigate the loss of export caused by the trade war. Additionally, the RECP in combination with the ongoing trade war may in fact result in the cultivation of South East Asian markets and hence work towards realising the goals listed in the ASEAN Economic Community Blueprint 2025. The proximity of South East Asia to China coupled with the RECP Free Trade Agreements, may make South East Asia the main beneficiary of Chinese trade and investment.
Regardless, it is clear that the trade war between the U.S. and China has serious consequences for ASEAN and its member states and poses a threat to the economic progress of the region. The RECP negotiations in July may therefore be a vital development in the economic future of South East Asia.
Tawnni Castaño de la Cuesta is an Assessment and Feedback Officer at the University of Birmingham. She has previously worked at the Institute for Conflict, Cooperation and Security as well as the Human Rights Advocacy Center. Tawnni has a Bachelor’s degree in Global Justice from Leiden University College, The Hague and is currently pursuing a law degree at the University of Birmingham.
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