No buttons in this curious case

THE United States is struggling to change perceptions of its waning economic influence in the Asean region vis-à-vis China’s at a time of heightened geopolitical tensions in the region. China, meanwhile, continues to aggressively stake claims to the South China Sea amid the ongoing trade war it has with the United States.

The above is what author Kristina Fong observes in a paper “The Curious Case of Sluggish US Economic Influence Perceptions in Asean”, published by the Asean Studies Centre at ISEAS – Yusof Ishak Institute.

With the upcoming US elections and unabating geopolitical uncertainties across the globe, the paper says that if the US is serious about wanting to grow its influence or at least counter China’s top position in the region, it has to do more.

There is a perception in the region that at a time when trade barriers seem to be increasing globally, the US does not have much to proffer except the Indo-Pacific Economic Framework for Prosperity, which does not really offer increased market access.

At the same time, there are tariffs or the threat of more tariffs as well as investigations over trade infringements.

What is interesting is that these observations, taken from the 2024 edition of “The State of South-East Asia Survey” gauging the views of people in the region, showed that there are increasing concerns over how the US or China could exert undue influence on individual Asean member’s sovereign affairs and force them to take sides.

Respondents chose “intensifying economic tensions between major powers” as the third-ranked challenge in the region. Unemployment and recession were ranked first, with climate change impact coming second.

Fong notes that despite the benefits from deeper strategic partnerships, economic upgrading in terms of skills and technology, and greater economic integration, Asean members are also wary of the US’ or China’s economic influence and its underpinnings.

“In this sense, significant levels of economic influence by a foreign actor could suggest undue influence on the economic decisions of a sovereign state, perhaps serving the influencer’s purpose more than that of the host country,” she says.

A singular worry is how disproportionate economic dependence on either the US or China may in turn weigh on Asean members’ economic performance, like how the global financial crisis of 2008/2009 affected economies and saw synchronised downturns.

With greater geopolitical uncertainty in recent times, the idea of overdependence on or sway towards certain economic actors is largely viewed as more of a bane than a boon, Fong says.

The results of the survey reflected the concerns of the US-China trade war. While respondents show growing concerns over China’s economic influence, there are also signs of concern over US influence in the region.

“This illustrates the concern that higher levels of economic influence could be a precursor to significant interference in domestic policies. Alternatively, this growing influence could inadvertently drive the Asean member states closer to the scenario of having to choose between the two superpowers in terms of strategic alignment,” she adds.

For the record, ever since the first survey was carried out in 2019, China has consistently come up top in terms of economic influence in South-East Asia despite data showing that the US remains the top investor in terms of FDI and continues to hold its own as a key export destination for the region.

In contrast, while Asean trade with China is almost double in value compared to the US, the strength of China’s influence falls mainly on the side of imports as opposed to exports, which seem to only match the US.

Breaking down the trade flows between the region and the two economic superpowers, what shows up is that the US remains an important market for key export components such as electrical machinery and equipment while China is a more significant source for imports crucial for these same goods, which could tip perceptions in its favour.

“Without integral production inputs, several Asean countries such as Malaysia and Vietnam, would not form such integral nodes in the global value chain for manufacturing,” she points out.

Fong believes that traditional measures of economic influence may not be all that matters in how economic influence is perceived.

“What could be tilting the balance for China in the investment game could possibly be their high visibility in participating in externally funded developmental projects,” she says.

Besides highly visible infrastructure projects there is also a high acceptance of Chinese consumer brands by the growing Asean consumer base. A recent review by Kantar, a market researcher, showed that the highest-ranked brands are those in dynamic industries such as consumer technology goods and services rising rapidly to become household names.

BMI’s head of political and security risk, Yoel Sano, says in a recent presentation, “World of Worries: Political Risks in 2025”, that US-China rivalry will continue to be a defining feature of geopolitics in the coming decades.

He believes that countries around the world will delay making a “choice” between US and China for as long as possible, as they hedge their bets. Meanwhile, with heightened risks, major economies will seek to source essential products closer to home (near shoring) or from geopolitical allies (friend shoring).

Malaysia takes over the helm of Asean in the coming year, and has been pretty nimble in navigating the geopolitical reefs in the US-China trade conflict, attracting FDI in recent years as multinational firms seek to diversify their supply chain risks.

It has also been a beneficiary of China’s Belt and Road Initiative, although the benefits are yet to be understood or accrued to the economy.

It will be interesting to see how the country can manage an Asean narrative amid the ongoing tensions over the South China Sea and the US-China trade war.