China’s trade war pain can be ASEAN’s gain: how Southeast Asia is reaping a windfall of shifting trade and investment
Trade and political tensions are quickening China’s integration with ASEAN’s economy. But even as countries in the bloc vie for Chinese trade and investment, China knows they won’t allow themselves to be locked into its embrace
The current trade war between the United States and China is causing considerable stress to businesses in the line of fire. Even after the US midterm elections next month, the tension will not go away.
Manufacturers in China, both Chinese and non-Chinese, are reacting. Distribution centres for consumer products are shifting back to Hong Kong from China. Mainland electronics companies are relocating facilities to Taiwan so that final products exported to the US are not from China and therefore, subject to rules of origin, not liable to new US tariffs.
As US Customs tightens compliance with rules of origin, trade diversion from China to Southeast Asia and other countries will be followed by investment diversion. China will instead supply components to countries exporting to the US. The trade war is accelerating a process already underway, which is the relocation of lower value-added manufacturing activities from China to Southeast and South Asia, and increasingly also to Africa.
We can expect China to give greater emphasis to the Belt and Road Initiative as it girds itself for a prolonged trial of strength with the US. Chinese leaders do not want a fight with the US and are prepared to meet US demands more than halfway, but they cannot afford to be humiliated in the eyes of their own people. For decades to come, China’s growing economic, political and military weight is bound to create episodic instability in relations with the US, Europe, Russia, India and Japan.
Asean as beneficiary
As the world adjusts to a shifting geopolitical landscape, the greatest beneficiary is Asean. Asean is non-threatening to the major powers. The variable geometry of Asean enables it to adjust to regional stresses and strains by sometimes tilting in one direction, sometimes in the other. The current trade war has made Asean an attractive alternative or supplementary manufacturing base to China.
Asean is perfectly positioned. China’s growing importance as an importer is a gradual sea change that has yet to be widely noticed. It will not be many years before China becomes the biggest market in the world, not only for raw materials and food, but also for manufactured products and services. This will have profound consequences for global trade, economics and politics.
