Rivalry between the US and China in regional economic cooperation: opportunities and challenges for ASEAN
Rivalry between the US and China in regional economic cooperation: opportunities and challenges for ASEAN

Rivalry between the US and China in regional economic cooperation: opportunities and challenges for ASEAN

China’s membership of the Regional Comprehensive Economic Partnership (RCEP) and the prospect of its accession to the CPTPP further increase China’s role in supporting the rules-based multilateral system to which the United States is making a stable but selective comeback.

ASEAN countries should increasingly rely on regional economic cooperation as a platform to engage with China and the United States, in particular with their continuing geopolitical tensions. Following the US withdrawal from the Trans-Pacific Partnership (TPP) in January 2017the remaining TPP members formulated the comprehensive and progressive agreement for the Trans-Pacific Partnership (CPTPP), which entered into force on 30 December 2018. According to 2022 State of Southeast Asia (SSEA) studyis the main effect of the US absence on the CPTPP increase in China’s regional influence.

China has played an increasingly important role in ASEAN’s trade over the last decade. Nearly half of SSEA respondents perceive the increase in China as filling the void left by the United States (Figure 1). Such a view reflects the rapid growth of trade between China and ASEAN relative to trade between the United States and ASEAN. China was ASEAN’s top-ranked trading partner, while the United States was the region’s second largest trading partner in 2019. China-ASEAN trade expanded from $ 235 billion in 2010 to $ 508.0 billion in 2019; this growth of 116 percent was almost double the trade between the United States and ASEAN, which increased by 63 percent.

Source: The author’s calculation using data from 2022 SSEA.

China’s membership of the Regional Comprehensive Economic Partnership (RCEP) and the prospect of its accession to the CPTPP further increase China’s role in supporting the rules-based multilateral system to which the United States is making a stable but selective comeback. The RCEP includes ASEAN-10 countries as well as five non-ASEAN-signing countries, namely Australia, China, Japan, New Zealand and South Korea. It has placed China at the heart of the largest intercontinental trade bloc, which accounts for about 30 percent of both global gross domestic product (GDP) and global population. The implementation of RCEP began on January 1, 2022 and was to serve as a key engine for trade and investment in ASEAN and East Asian countries in 2022 and beyond. I 2035, trade and investment liberalization under the RCEP will generate $ 675 billion in revenue gains for members. China and ASEAN account for 56 and 24 percent of total income gains, respectively.

In addition, Chinese presence in the CPTPP – subject to its approval September 2021 application for membership – is expected to bring significant benefits to China and other CPTPP partners. Expansion of CPTPP to China and other interested countries such as South Korea, Indonesia, the Philippines and Thailand will increase global income by an estimated USD 1.225 billion per year, which is seven times more than the current CPTPP’s contribution. There are, however worries over China’s ability to comply with CPTPP rulessuch as promoting transparency in state-owned enterprises (SOEs), reducing state aid to state-owned enterprises, increasing protection of intellectual property rights and liberalizing foreign direct investment.

The United States is likely to offset the increase in China’s regional influence through economic cooperation agreements and security pacts. On the plus side, although the US does not return to the CPTPP, it may re-enter Asia through a “Indo-Pacific economic framework”(IPEF) as announced by President Biden in October 2021. IPEF aims to strengthen US economic relations with Asian countries as a counterweight to China. It may include the United States important trading partners in regions such as Australia, India, Indonesia, Japan, Malaysia, Singapore, South Korea, Thailand and Vietnam.

Even if the United States does not return to the CPTPP, it could re-enter Asia through an “Indo-Pacific Economic Framework” (IPEF) as announced by President Biden in October 2021.

Some possible areas for economic cooperation under IPEF may include the promotion of high-standard trade, the management of the digital economy, the improvement of the supply chain’s resilience and security, and the building of digital connectivity. Translating these goals into commitments and actions would require several rounds of negotiations to derive free trade or comprehensive economic agreements laying down rules for the participating countries. If IPEF is designed to compete with existing regional trade agreements (RTAs) such as CPTPP and RCEP, IPEF partners should enter into the agreement with broader and deeper obligations than its RTA competitors.

Downward risks will mainly come from the US focusing more on security issues in Asia and the Pacific. 23.2 percent of SSEA survey respondents fear the rise in regional tensions as the U.S. may shift its focus from RTAs to security pacts in the region (Figure 1). The ghost of these tensions weighs heavily on 15.9 percent of respondents in Laos and 16.7 percent in Vietnam to 26.4 percent in Brunei and 29.8 percent in Indonesia. Russia’s recent invasion of Ukrainefor example, would raise US concerns about the stability of the South China Sea and the Taiwan Strait. Such concerns could prompt the United States to reconsider its security commitments to Southeast Asia and to expand its defense partnerships with allies and partners, including ASEAN countries.

Rivalry between the US and China in regional economic cooperation could bring benefits to ASEAN. CPTPP plus China and other ASEAN countries, combined with strict monitoring mechanisms, will provide mutual benefits to its members. Translating possible areas of economic cooperation under IPEF into free trade or comprehensive economic agreements should strengthen economic relations between the United States and some ASEAN countries. However, ASEAN countries may face an escalation of tensions between the United States and China over regional security issues.

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