Global

31 Jan 2024

Southeast Asia Global Relations Outlook Part 1: US and China

by Institute

This is the first part in a short series exploring Southeast Asia’s relationships with key global powers and economic blocs. The series aims to give a snapshot at the beginning of 2024, looking at the events over the past months that have shaped the region’s global relationships, and the dynamics that will determine them moving forward.

Introduction

In recent years, the United States has intensified its diplomatic, economic, and security engagements with Southeast Asia, underlining a strategic shift towards bolstering ties in a region of increasing geopolitical significance. The Biden administration has prioritized building and deepening relationships with ASEAN member states, aiming to counterbalance China’s influence while addressing regional challenges. Meanwhile, China’s profound economic presence, epitomized by its status as a top trading partner and major investor for several ASEAN countries, intertwines with complex geopolitical dynamics, including the Belt and Road Initiative (BRI) investments and maritime disputes in the South China Sea.

This overview delves into the approaches of both the US and China towards Southeast Asia, examining diplomatic initiatives, economic partnerships, and security dynamics, amidst the backdrop of evolving dynamics in the Indo-Pacific region.

United States

Increasing engagement

The Biden administration has had a fairly productive last two years in terms of (re)building ties with Southeast Asia. The region saw several high-level visits by senior members of the administration in the second half of 2021, including Secretary of Defense Lloyd Austin, Vice President Kamala Harris, and Secretary of State Antony Blinken.

President Biden attended the annual US-ASEAN Summit held in Phnom Penh in 2022, where the United States and ASEAN upgraded their relationship to a Comprehensive Strategic Partnership (CSP). US Vice President Kamala Harris later attended the 2023 US-ASEAN Summit in Jakarta.

To strengthen their enhanced relationship, both parties expressed their intention to establish a US-ASEAN Center in Washington, DC. Additionally, the Biden administration facilitated further engagement by hosting the US-ASEAN Special Summit in Washington, D.C. in May 2022, preceding the Phnom Penh Summit, as well as the APEC Summit in San Francisco in 2023.^[1] ^[2]

Leveraging the newly elevated relationship

These diplomatic efforts are part of the Biden administration’s strategy to counter Chinese regional influence by fostering both deeper economic and security ties.

In terms of economic statecraft, in May 2022 the Biden administration launched the Indo-Pacific Economic Framework (IPEF) with 14 countries, including seven ASEAN members — Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam. It is widely seen as Washington’s attempt to re-engage economically in the region after the Trump administration withdrew from the Trans-Pacific Partnership (TPP) in 2017.^[3]

While IPEF has been criticized for lacking market access and major infrastructure investments, it is nevertheless seen as a useful platform for ASEAN Member States to participate in rulemaking for regional trade, particularly when it comes to emerging issues such as a clean and fair economy and supply chain resilience. It also provides a platform for individual member states to resolve bilateral trade issues with the US. At the time of writing, an agreement has been reached for Pillar 2 (Supply Chains), while ‘substantial conclusions’ have been reached for Pillar 3 (Sustainable Economy) and Pillar 4 (Fair Economy). Negotiations for Pillar 1 (Trade), however, remain ongoing. Given the domestic sensitivities concerning trade, there are low expectations for a substantive IPEF trade agreement, especially in an election year in the US.^[4]

The Biden administration has also made gains in deploying economic statecraft bilaterally, including through the Just Energy Transition Partnerships with Indonesia and Vietnam; a semiconductor pact with Malaysia; a tech partnership with Singapore, and a nuclear agreement with the Philippines.^[5] The US also established Comprehensive Strategic Partnership status with Vietnam and Indonesia.

The upgrading of ties between the US and Vietnam in September 2023 is expected to drive growth in critical industries from semiconductors to defense.^[6] Meanwhile, both the US and Indonesia are currently in negotiations to sign a limited FTA with regards to critical minerals, under which electric vehicles made using Indonesian nickel would be subject to subsidies created under the Inflation Reduction Act (IRA).

However, a group of US senators have opposed such a move with Indonesia, citing the country’s standards for labor rights, environmental protection, safety and human rights.^[7] With regards to the Philippines, US Secretary of Commerce Gina Raimondo is expected to lead a Presidential Trade and Investment Mission to the Philippines in the Spring of 2024, during which the U.S. and Philippines will co-host the 6th Annual Indo-Pacific Business Forum in Manila.^[8]

Security ties

In terms of security ties, the US has benefited from individual ASEAN Member States seeking to build their own bilateral partnerships and coalitions outside of the institutional sclerosis of ASEAN.

The Philippines, for example, has strengthened its treaty alliance with Washington by expanding access by the U.S. military to several bases across the country, including air and naval facilities in Cagayan, which lies opposite Taiwan on the northeastern tip of Luzon Island. As previously mentioned, US-Vietnam relations were elevated from “comprehensive” to “comprehensive strategic” in part following incidents between Chinese coast guard vessels and Vietnamese fishing boats as well as natural resource exploration activities in Vietnam’s internationally recognized exclusive economic zone.

Indonesia too has also sought to build closer security ties with Washington. In June 2023, for example, the US Air Force was given first-ever clearance to land two B-52 strategic bombers on Indonesian soil. Subsequently in August, Jakarta opened the second iteration of the multinational Super Garuda Shield military exercise with fellow ASEAN member Singapore, as well as Australia, Britain, France, Japan, and the United States.^[9]

With the reduced bandwidth of an election year in 2024, we can expect to see the pace of US-ASEAN initiatives to slow down. The Biden administration will seek to build upon existing relationships to the extent that is possible; new initiatives are highly unlikely.

The ongoing wars in Ukraine and Gaza are also expected to draw the bulk of US foreign policy attention for the foreseeable future. Given that the upcoming election is expected to be fraught, politically sensitive issues such as trade and de-risking from China will likely play a role in American political discourse, possibly complicating US-ASEAN initiatives and relationships in the near future, whoever wins the White House.

China

Economic Partnership and Trade Relations

China remains one of ASEAN’s most important economic partners. It is the top trading partner for several ASEAN countries, as well as one of the region’s largest sources of foreign direct investment. Some ASEAN states have come to rely heavily on China to maintain growth and promote development, notwithstanding the geopolitical challenges that China poses for many of them.

Both parties are currently in the process of concluding the ASEAN-China Free Trade Agreement (ACFTA) 3.0 upgrade negotiations by 2024. The upgraded ACFTA is expected to include new growth areas such as digital economy, the green economy, competition, and MSMEs, ensuring the agreement remains relevant to a changing world economy.^[10]

Belt and Road Initiative (BRI) Investments and Infrastructure Projects

ASEAN collectively has been one of the largest recipients of capital in relation to China’s Belt and Road Initiative (BRI), a global programme launched in 2013 to link China with new markets worldwide through a vast network of infrastructure projects. Some of these projects have since become controversial and sparked varying degrees of domestic backlash based on their transparency, economic rationale, and environmental impact.

In countries like Malaysia, changes of government have seen projects cancelled and/or renegotiated, such as the East Coast Rail Link, while other projects such as the Bandung-Jakarta High Speed Rail in Indonesia have faced cost overruns and delays.

While BRI-related investments into the region have slowed in recent years, Southeast Asia is expected to remain a priority investment area for the initiative due to the region’s geopolitical importance. Future investments into the region are expected to shift away from big-ticket infrastructure projects towards newer sectors such as the digital economy and green tech, in particular electric vehicles.^[11]

Impact of China’s Economic Slowdown on ASEAN Economies

Given the strong economic linkages between China and the region, it is likely that China’s ongoing economic slowdown will ripple across the region, placing a drag on growth for many ASEAN economies. Some of the most important industries for earning foreign currencies in many ASEAN economies rely on the Chinese economy, such as the electronics sector in the Philippines and Malaysia, and to some extent tourism in Thailand. With domestic consumption and outbound tourism slowing down in China, this is expected to apply downward pressure on regional currencies.^[12]

Indeed, in the past weeks the Malaysian ringgit, Philippines peso, Thai baht, and Indonesian rupiah have traded at their weakest levels against the US Dollar in months. Capital control policies implemented in China will also reduce outward FDI by China’s private sector.^[13]

While ASEAN leaders will continue to place importance on their economic relationship with China, any economic slowdown brought about by China’s own stalling post-pandemic recovery may encourage leaders to seek alternative economic partners.

Geopolitical Tensions and South China Sea Disputes

Despite strong trade and investment ties, tensions over overlapping claims in the South China Sea involving several maritime ASEAN Member States will also prove a hindrance to the overall relationship. This came to a head in December 2023, when ASEAN foreign ministers issued an unprecedented stand-alone joint statement on the South China Sea dispute, calling upon all rival claimant states to exercise restraint and pursue a peaceful resolution of the dispute.^[14]

There have already been several risky encounters between maritime forces of the Philippines and China in the last few months over the disputed Second Thomas Shoal. ASEAN’s lack of unity – beyond the December statement – on the issue has pushed Manila to further its security ties with non-ASEAN partners, in this case its sole treaty ally the US, and other members of the Quad. Manila also announced plans to upgrade its fortifications across its claimed land features in the South China Sea. Maritime disputes in the South China Sea have become flashpoints over the last few months and are expected to significantly challenge overall China-ASEAN ties in 2024.^[15]

Conclusions

Through high-level visits, virtual summits, and institutional developments such as the upgrade to a Comprehensive Strategic Partnership with ASEAN and some individual member states, the Biden administration has demonstrated a clear commitment to deepening cooperation with the region. However, the administrations focus will shift as the US moves into an election year, with the backdrop of the wars in Ukraine and Gaza pre-occupying the security establishment.

This shift in focus is unlikely to create any immediate opportunities for China, given the range of recent issues including controversies around BRI projects, tensions in the South China Sea, as well as the slowdown of the Chinese economy. However, China remains an important economic partner and an upgraded ASEAN-China FTA will further expand economic ties in new strategic areas such as electronic vehicles. Across both major world powers, ASEAN continues to maintain a balanced set of relations.

The second part of the series will look at the region’s relationships with the ‘next two’ global powers: the European Union and India.

About the Southeast Asia Public Policy Institute

The Southeast Asia Public Policy Institute is a research institute based in Bangkok and Singapore, working across the region. Our mission is to support the development of solutions to the most pressing public policy challenges facing Southeast Asia in the 21st century. The Institute undertakes in-depth research to develop actionable policy solutions on a range of issues across sustainability, technology, public health, trade, and governance. We convene dialogues with stakeholders and decisionmakers to drive discussion on the challenges and opportunities facing markets across the region. The Institute draws on a network of in-market researchers, advisors, and partners to provide insights and recommendations for governments, policymakers, and businesses.

^[1] Stromseth, J. (2022), ‘Taking stock of US-ASEAN relations as Biden convenes a special summit’ in Brookings,

^[2] The White House (2023), ‘FACT SHEET: U.S.-ASEAN Comprehensive Strategic Partnership, One Year On’,

^[3] Manak, Inu (2023), ‘Unpacking the IPEF: Biden’s Indo-Pacific Trade Play’ in Council on Foreign Relations,

^[4] Negara, S. D. and Wihardja, M. M. (2023), ‘IPEF’s Relevance for ASEAN”, in Fulcrum, Menon, J. (2023), ‘What Can Malaysia Expect from IPEF?’ by ISEAS Yusof-Ishak Institute, Saraswathi, M. (2023), ‘Indo-Pacific Economic Framework: One pillar signed, two concluded, trade pillar remains pending’ in The Edge,

^[5] Parameswaran, P. (2023), ‘IPEF Challenge Dominates APEC Amid Southeast Asia Growth Stakes & Biden-Xi Hype’ in ASEAN Wonk,

^[6] Hoang, L. (2023), ‘U.S. upgrades Vietnam ties as Biden blasts China for ‘changing rules’’ in Nikkei Asia,

^[7] Moriyasu, K. (2023), ‘U.S. and Indonesia upgrade ties with eye on critical minerals pact’ in Nikkei Asia,

^[8] Flores, H. (2023), ‘US trade, investment mission to visit Philippines’ in PhilStar,

^[9] Grossman, D. (2023), ‘With ASEAN Paralyzed, Southeast Asia Seeks New Security Ties’ in Foreign Policy,

^[10] ASEAN (2023), ‘Third Round of ASEAN-China FTA 3.0 Upgrade Negotiations’ by ASEAN, Malay Mail (2023), ‘PM Anwar: Malaysia supportive of Asean, China effort to conclude ACFTA upgrade negotiation by 2024’ in Malay Mail,

^[11] Chew, A. (2023), ‘ASEAN to stay priority for China’s BRI investment despite slowdown’ in Nikkei Asia,

^[12] Chew, A. ‘ASEAN to stay priority for China’s BRI investment despite slowdown’, Tamura, T. and Kamiyama, M. (2024), ‘Philippine peso, Malaysian ringgit sink on China’s economic woes’ in Nikkei Asia,