U.S. Loss is China’s Gain: ASEAN and the $2.3 Trillion Economy
The Association of Southeast Asian Nations (ASEAN) recently concluded its annual summit held virtually this year due to the COVID-19 pandemic.
Following eight years of negotiations, 15 countries signed a new free trade agreement, which I describe as a geopolitical and economic victory for China, since it recently overtook the U.S. to become the world’s largest economy, according to the IMF’s World Economic Output 2020 report.
The goal of ASEAN is to promote stability and economic growth across its members. This ten nation international organization was founded in 1967 during the Cold War period, hoping to make the region more stable.
The Regional Comprehensive Economic Partnership (RCEP) represents a major economic step forward and strategic success for China in strengthening its trade and economic ties particularly in the Southeast Asia-Pacific region. RCEP includes, along with China, the 10 ASEAN member countries, as well as Australia, New Zealand, South Korea and Japan.
The agreement, signed this year at a regional summit in Hanoi, Vietnam, provides China significant momentum to cement its dominance thru trade and investment, and help build a giant market of more than 2.3 billion consumers.
China, not the U.S., writes the New Rules
Given the ongoing trade tensions between the U.S. and China, the latter decided to turn its attention to domestic consumption to fuel the global economy. It is a shrewd strategy given the fact that China is currently the leading global economy. The ASEAN summit provided the opportunity for China to tell the region and the world – for that matter – that it is moving forward with internationalizing its currency and rewriting the game rules. As a result, the region will subscribe to China’s role in the region, not only as the source of funding, but also development of advanced technology including 6G.
China’s economic expansion will be felt in future years, as the RCEP agreement will assist China in countering the protectionist and isolationist policies of some countries, including the United States. The agreement also strengthens China’s presence in the ASEAN region to surpass the European Union and the United States in its trade volume.
Of note: Trade between China and ASEAN reached 2.09 trillion Yuan (about $299 billion) in the first six months of 2020, up 5.6 percent from the same time in 2019.
As argued in my previous writings, China’s "Belt and Road Initiative" (BRI), will have tremendous economic and geopolitical implications. ASEAN’s recent agreement supports my argument vis-à-vis China’s BRI effort in Southeast Asia, and China’s push forward of the financial mechanisms to make BRI a success, mainly the Asian Infrastructure Investment Bank. The bank has about a $100 billion capital base in which China provides $30 billion.
Diminishing Role for the U.S.
A host of factors has contributed to negative perceptions of the U.S. that have currently influenced its close ties with some Asian countries like the Philippines,, Indonesia, Malaysia, and others.
What the RCEP agreement provides, according to political economist Xian Zuana, is fertile ground on which China can enhance its economic and trade interests, especially following the Cold Economic War President Trump launched on China! Furthermore, the failure of the U.S. administration to blockade China by fueling China's problems with its Asian neighbors around the maritime border and islands in the South China Sea waters has failed miserably. "This means trying to pull the rug out from under American feet, putting common interests with the signatories to existing differences, and the possibility of overcoming them, depriving America of pressuring China," Zuana argued.
Under no circumstances am I suggesting that the U.S. partners will completely abandon the U.S. Rather, these partners will increase their economic dependency on China, rightly so, while remaining under the U.S. political and security umbrella.
Moving forward, the U.S. stands to lose economically with U.S. companies not having a competitive edge as China redraws the trade and economic map of the region. This comes on the heels of China’s launching its digital currency along with advanced technology represented by 6G development. These two elements will transform China’s approach to local, regional, and global economies.
Clearly, the ASEAN agreement will benefit China, Japan and South Korea more than other member states. Interestingly, South Korea, Australia, and Japan, three of close U.S. allies, participated in the virtual Summit. It sends a clear message to Washington confirming that allies have to consider their interests first.