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U.S. foreign policy on Southeast Asia has long focused on strong defense and security ties. But with the United States increasingly regarding China as “attempting to erode American security and prosperity,” the White House has been looking at new ways to bolster alliances and partnerships to counter China’s growing influence in this region.

Washington’s new strategy became apparent in Secretary of State Antony Blinken’s recent trip to Malaysia and Indonesia, where he outlined plans to deepen economic engagement with Southeast Asia, while presenting the U.S. as the better alternative of the two.

Speaking in Kuala Lumpur in mid-December, Blinken spoke of more investment opportunities for U.S. firms in Malaysia, particularly in the energy sector and semiconductor supply chains, in addition to highlighting America’s assistance on defense.

A day earlier, in Jakarta, Blinken and his Indonesian counterpart, Retno Marsudi, spoke about a deal to extend maritime cooperation until 2026, the establishment of a “2+2” ministerial dialogue, as well as U.S. commitment to increasing economic cooperation.

“Investment opportunities in Indonesia are wide open, including in health sectors, digital, as well as energy transitions,” said Retno during a press briefing, while noting that U.S.-Indonesian trade increased by more than 30% year on year, and American investment soared by 73% in the first nine months of 2021, compared to all of 2020.

That said, China — not the U.S. — is the predominant economic power in the region.

While Beijing has seemingly been using the strength of its economy to increase its power and influence across Southeast Asia, Washington has repeatedly been criticized for lacking an economic vision for the region after President Donald Trump withdrew the U.S. from a free trade deal with 11 other Pacific nations in January 2017.

“Washington has been struggling in this regard,” says Rafiq Dossani, director of the Center for Asia Pacific Policy at the Washington-based RAND Corp.

The U.S. has offered markets but not public investment in public goods such as infrastructure — nowhere close to the scale of Chinese investment, Dossani says, adding that the U.S. strategy has focused on alliance building.

Indo-Pacific economic framework

Against this backdrop, Blinken’s trip — which came only a few months after U.S. Vice President Kamala Harris and Secretary of Defense Lloyd AU.S.tin also visited Southeast Asia — highlights Washington’s desire to elevate and expand economic engagement with a region that has become a key stage for the Sino-U.S. rivalry, and where both countries remain locked in a struggle for power and influence.

To this end, Blinken formally announced in Jakarta that Washington is developing a comprehensive Indo-Pacific economic framework designed to deepen cooperation around “trade and the digital economy, technology, resilient supply chains, decarbonization and clean energy, infrastructure, worker standards, and other areas of shared interest.”

Very few details have emerged about the framework, but the U.S. is expected to launch a formal process next year to lay the groundwork for these future economic partnerships.

During visits to Singapore and Malaysia in November, U.S. Commerce Secretary Gina Raimondo said the future framework, which will be about “developing robust commercial and economic relationships with our partners in the Indo Pacific,” is not envisioned as typical free trade deal, adding that it must be inclusive and flexible so that many countries can participate.

U.S. Secretary of State Antony Blinken meets Malaysian Foreign Minister Saifuddin Abdullah in Putrajaya, Malaysia, on Dec. 15. | MALAYSIAN MINISTRY OF FOREIGN AFFAIRS OFFICE / HANDOUT / VIA REUTERS
U.S. Secretary of State Antony Blinken meets Malaysian Foreign Minister Saifuddin Abdullah in Putrajaya, Malaysia, on Dec. 15. | MALAYSIAN MINISTRY OF FOREIGN AFFAIRS OFFICE / HANDOUT / VIA REUTERS

According to Rajiv Biswas, Asia-Pacific chief economist at IHS Markit, U.S. goods and services trade with Southeast Asian countries totaled an estimated $362 billion in 2020. The U.S. has also been a large source of foreign direct investment in the region for decades, with the cumulative amount of U.S. FDI in ASEAN reaching $329 billion in 2020, a 3.2% increase from 2019.

The U.S. and ASEAN also have a strategic partnership under which Washington provides assistance to ASEAN countries in a broad range of areas.

According to Biswas, two new important programs under this partnership — which will receive a boost of up to $102 million — will be American funding for a new bilateral Climate Futures initiative dedicated to tackling the climate crisis, and the launch of the U.S.-ASEAN Climate Action Program, which is aimed at to supporting ASEAN’s development through climate change research, coordination and innovation.

Moreover, the U.S. government’s aid agency has established a Southeast Asia Smart Power Program to help the region with its transition away from fossil fuels to clean energy. The initiative also includes a large number of other programs, including venture capital financing for technology-related investments and a smart cities business innovation fund, Biswas says.

Striking a balance

But will this be enough to shift the power balance with China?

American diplomats have said Washington is not asking countries in the region to choose sides, but only ensuring they are equipped to make their own decisions. That said, many of these countries are feeling pressure from both sides, and fear that the growing Sino-U.S. rivalry will lead to heightened tensions, particularly as Washington has also strengthened its security alliances with other Indo-Pacific countries such as India, Japan and Australia.

Southeast Asian countries would prefer to maintain strategic autonomy in the region and navigate this competition by striking a balance between remaining engaged with all sides while not becoming too dependent.

As Malaysian Defense Minister Hishammuddin Hussein put it, his country does not want to be “dragged into the geopolitics of the world’s big powers in the region.”

While many Southeast Asian countries welcome greater U.S. investment and the continuation of a rules-based order in the region, especially regarding the South China Sea disputes, they do not want to jeopardize their relations with China, with many signaling that they do not necessarily view Beijing as a threat.

A big supporter of such an approach is Malaysia, which has repeatedly stated that the South China Sea should be “a platform for cooperation and connectivity, not an area of confrontation or conflict.”

In this regard, Dossani points out there are two positions Southeast Asian countries are presenting to the United States.

“The first is that ASEAN is the hub through which decisions will be made, not individual countries,” Dossani says. “The reason behind it is that, although the viewpoints of ASEAN states differ in some cases, any choosing of sides will be seen within ASEAN as a weakening of association. This is something the ASEAN states do not want since they prioritize ASEAN unity above relations with the United States.”

The second, he adds, is that Southeast Asian states do not want to make a choice.

“They see no gain from alienating China, which is economically integrated with Southeast Asia,” he says.

The strength of Sino-ASEAN economic ties

Sino-ASEAN economic ties have grown at a rapid rate over the past three decades, with bilateral trade in goods increasing from just $9 billion in 1991 to $685 billion in 2020. In fact, ASEAN surpassed the European Union in 2020 to become China’s largest trading partner for the first time.

One important way of strengthening Sino-ASEAN economic cooperation over the past decade or so has been the establishment of free trade areas.

Moreover, economic ties have profited from infrastructure development projects across the region, particularly through China’s Belt and Road initiative, with additional projects set to be proposed as part of the new Regional Comprehensive Economic Partnership — a free trade agreement among 15 Asia-Pacific nations, including China and all 10 ASEAN members, that will come into effect at the beginning of 2022.

Economic integration between Southeast Asia and China could further deepen, especially as the latter has also applied to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership — a massive Asia-Pacific free trade deal that the United States is not a part of.

China has recognized that its political model has limited appeal to Southeast Asian countries, Dossani says, which is why its strategy has so far been twofold: economic integration – which is soon to be bolstered by the Regional Comprehensive Economic Partnership – and noninterference in the domestic affairs of the countries in the region.

Outlook

The strategic competition between the U.S. and China will only continue to intensify in 2022. This time, however, Washington will not only be focusing on stepping up defense and security, but also economic ties as part of efforts to fill a crucial gap in its strategy to counter Chinese influence.

As economist Biswas notes, the continued strong growth in the U.S. economy will drive demand for Southeast Asian products, while U.S. multinationals are also expected to remain the largest source of foreign direct investment into Southeast Asia in 2022.

At the same time, expect to see Beijing ramp up efforts to try and keep its geo-economic edge over Washington in this strategically important region.

“China cannot abandon Southeast Asia for at least the next two decades, for both economic and geopolitical reasons,” Dossani says. “Supplying public capital through the Belt and Road initiative, health care (pandemic) support, working through ASEAN, and encouraging Chinese firms to invest in the region will be some of the strategies.”

Likewise, Southeast Asia is unlikely to abandon China, as it is economically integrated with it for trade and, increasingly, investment, he adds.

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