Into the void
Last week in response to the “Liberation Day” tariffs, Australia’s Prime Minister Anthony Albanese reached for the diplomatic gambit that has increasingly become the government’s go-to response to geo-economic fragmentation: ASEAN.
Declaring bluntly that the United States had abandoned regional nations, Albanese said Australia would “step up its engagement with ASEAN countries and fill the void”. Then he rolled out the usual talking points about last year’s ASEAN-Australia Special Summit, the Moore Report on business engagement, and the government’s prescience.
An election campaign atmosphere is perhaps not the place to reiterate that despite the greater comprehensiveness of this government’s Southeast Asian economic strategy, its predecessors have walked this path several times before. Acknowledging this might have given the strategy more credibility – at home and abroad.
For example, with exquisite timing, the inaugural NSW ASEAN trade and investment commissioner finishes a three-year term in Singapore this month, with no apparent replacement planned amid all the federal government talk about whole-of-nation statecraft.
More importantly, the Southeast Asian countries started discussing some form of joint approach to the Trump tariffs this week. Despite Trump’s sudden 90-day tariff pause on Wednesday, how the regional nations handle the issue has implications for what other nations do and Australia’s strategy of aligning more with this group of 10 countries, alongside Timor-Leste waiting for its seat at the table.
49 and out
When Cambodian Prime Minister Hun Manet came to office two years ago much was made of how his West Point military training might draw his China-aligned country more into the erstwhile US-led Western economic system.
That certainly evaporated last week when Cambodia received one of the highest “reciprocal” tariff penalties in the world from Trump, and the highest in Asia at 49 per cent.
As a region, Southeast Asia has also copped the highest tariffs in the world with, for example, a crude, unweighted average of more than 30 per cent compared with mid-twenties unweighted percentages for north and south Asia. (The European Union countries got 20 per cent and Latin America is much less than that.)
The high tariffs are ironically a recognition of how Southeast Asian countries have reinvented themselves the new factory of the world as makers of components or finished goods for the United States and beyond. As Niaz Asadullah and Doris Liew have already noted in The Interpreter, the United States now accounts for 16 per cent of ASEAN exports, slightly ahead of China.
But it also underlines how many of the ASEAN nations, including Vietnam and Indonesia, have maintained their own tariff and non-tariff barriers, despite various trade agreements including the recently updated ASEAN Australia New Zealand Free Trade Agreement and the efforts to create a regional market.
Despite the inaccuracy and opaqueness of the now paused Trump tariff regime, it has at least captured how the ASEAN countries have adroitly used their strategic leverage to get access to the United States while maintaining their own trade and investment restrictions.
The ability of ASEAN to maintain a common approach to the tariff upheaval will be a crucial test of their diplomatic and economic stature amid a fracturing global trade system
Malaysian Prime Minister Anwar Ibrahim, the current ASEAN chair, has backed a joint approach to negotiating a better tariff arrangement from the United States amid the administration’s claims that more than 70 countries trying to do the same thing.
“Malaysia, as ASEAN chair, will lead efforts to present a united regional front, maintain open and resilient supply chains, and ensure ASEAN’s collective voice is heard clearly and firmly on the international stage,” Anwar said on Sunday ahead of discussions among regional officials this week.
ASEAN leaders love to bask in the regular forecasts that their group is set to become the world’s fourth largest economic zone and insist on being the fulcrum of regional diplomatic architecture.
So, their ability to maintain a common approach to the tariff upheaval will be a crucial test of their diplomatic and economic stature amid a fracturing global trade system. It will also be an opportunity for the group to contribute to a more unified global response.
All for one
So far there has been a relatively positive start to a unified approach from Anwar taking the lead on a common position in the officials’ talks this week to Singapore Prime Minister Lawrence Wong flagging a “work around” with partners in the short term on the way to “a possible new and different global system”.
But the region’s global trade éminence grise Supachai Panitchpakdi – a former World Trade Organisation director general and Thai deputy prime minister – has nevertheless already warned that countries still seem to be primarily chasing their own individual deals which he says will not be effective.
On the face of it, that seemed to be the case at the weekend. As Anwar sought to assert himself as the ASEAN chair, Vietnam’s Prime Minister To Lam was first out of the box suggesting he had cut some form of deal on mutual zero tariffs in a conversation with Trump.
Lam appears to have been in the unusual position of being the first foreign leader to speak to Trump by phone after the tariff announcement and Trump quickly talked up the zero tariff possible deal on social media.
After a decade of adroitly putting the 1970s war with the United States aside, Vietnam possibly has the most at risk in this tariff upheaval of any country. Vietnam has the third largest trade surplus with the United States, US$113 billion, a booming export-oriented manufacturing sector, and now a potential 46 per cent tariff. It has also become one of the largest backdoor pathways into the United States for Chinese goods.
Meanwhile the other major ASEAN economies in Indonesia and Thailand have talked up sending delegations to the Washington to lower their tariffs and import more US goods. This is following in the footsteps of Japan and South Korea, in contrast to China’s tit-for-tat tariff countermeasures.
The temptation to seek individual deals with Trump will now be even greater in the next 90 days as the President’s officials will be seeking examples to underline the success of the tariff-coercion diplomacy and put further pressure on China. Meanwhile Anwar will be trying to maintain some regional unity as he hosts China’s President Xi Jinping for a bilateral visit next week.
Two weeks ago, trade ministers from China, Japan, and South Korea talked for the first time in five years about restarting negotiations on a long touted tripartite trade agreement in response to the looming Trump tariffs. However, they have many mutual rivalries to unravel.
In contrast, the Southeast Asian countries have a regional economic integration process well underway and the capacity to step it up immediately as an example to a world looking for long-term responses to the emerging US autarky. That’s what Supachai says they should do.
Whether they can actually do this effectively amid Trump’s special deal offers in the next 90 days will show what sort of void Albanese is taking Australia into.
