Is ASEAN Leaving the U.S. Behind on Trade?

China, Japan, South Korea—and the ten states that make up the regional organization called the Association of Southeast Asian Nations (ASEAN)—issued a statement on Monday that raised the eyebrows of some economists and trade experts. The countries expressed concern about “escalating trade protectionism” and agreed to work together to “reinforce long-term economic resilience” in their region. 

Though they made no mention of U.S. President Donald Trump’s tariffs and trade wars, the countries’ statement indirectly indicts Trump and seems to suggest a shared desire to work more closely together on various economic issues. This appears to be part of an implicit effort to create distance from the increasing volatility of the United States’ trade approach and its effect on supply chains and U.S.equities and bonds. 

We asked three CFR senior fellows—Rebecca Patterson, Brad W. Setser, and Joshua Kurlantzick— to comment on the significance of the statement and whether it truly indicates a shift in global trade relationships.

Does the statement mark a departure for China, Japan, South Korea, and ASEAN countries, or is it consistent with previous statements?

Patterson: This statement seems more of an incremental update than any sort of notable departure. But it is a good reminder for those of us not living in the depths of global trade every day that this group of countries is part of the largest free-trade agreement in the world: the Regional Comprehensive Economic Partnership (RCEP), which leaders explicitly reaffirmed their support for at this meeting.

The United States is not a member of this bloc. While the United States is too big for other countries to ignore, the ongoing trade war has the ability to push other countries closer together, especially where policy infrastructure like this already exists.

Kurlantzick: But overall, this statement—as with a lot of things ASEAN does—is lip service without follow-through. And ASEAN struggles badly to follow through on any major initiatives. Even RCEP, though initially driven by ASEAN, was mostly commandeered by China to completion. 

ASEAN operates by consensus, and so any one state in the group can block its actions. So it is possible, for instance, if this statement were going to lead to real action, that the Philippines—the most pro-U.S. country in ASEAN—would block any actual action. Such blocking has been done by various states over the years for different reasons, but it holds ASEAN back in effectiveness.

Setser: For all their talk about regional integration, I rather doubt the ASEAN countries will lose interest in exploiting the opportunities to increase trade with the United States created by the large differential between the tariff on direct bilateral U.S.-China trade and the tariff on indirect trade that relies heavily on Chinese parts that assembled in the ASEAN countries.

The steps Europeans are taking to expand fiscal policy and increase their own demand are more significant—and that is still what is lacking out of Asia.

What points from the statement are potentially significant?

Patterson: I think it’s noteworthy that the countries called for “enhanced regional unity and cooperation as we endeavor to weather the heightened uncertainty.” The United States would prefer countries not to trade as much with China. This statement goes in the other direction.

Kurlantzick: I agree, though I think creating a group of countries that will band together and isolate China was always going to be an incredibly difficult sell in Asia. China dominates trade in the region and is the largest trading partner of nearly every country in East Asia. The White House also just basically ended the U.S. Agency for International Development, which spent significant sums in Southeast and South Asia.

Setser: I am the resident curmudgeon here. A group of countries that all run current account surpluses can talk all they want about building their collective resilience, but together they run a massive surplus against the world and adding in more surplus countries doesn’t solve the basic problem that there isn’t an East Asian deficit or demand engine.

Generating real resilience in the face of the Trump shock will take more than another endorsement of the virtue of open trade. These are economies that haven’t been able to generate enough demand for their own output for some time. That will require them to think a bit outside the trade box.

Kurlantzick: Some, such as China, Japan, and Singapore, have begun to do so.

Does the statement suggest that major U.S. trading partners are planning to make alternative arrangements in trade or finance that exclude the United States?

Setser: They are certainly trying. But the Asian countries in particular face real limits on what they can achieve with regional integration alone. The ASEAN countries run a surplus with the world. China runs a huge surplus with the world. Korea’s surplus more than offsets Japan’s small deficit. Until this changes, these countries need to find an extra-regional outlet for their massive combined surplus. 

Kurlantzick: If they are rethinking their relationship with the United States, these countries need to look more to Europe, Latin America, and their own populations. Chinese leaders realize this now, but they should have emphasized this years (or decades) ago, when the economy was actually booming. Instead, people saved, and consumer spending is still vastly lagging what it should be to balance China’s economy more. 

Now, growth is weak, unemployment is high, and young people—who are avid consumers in many countries—are disenchanted. It doesn’t help that Chinese President Xi Jinping spent years squeezing the best-run and biggest companies in China selling consumer goods. 

They make no mention of Donald Trump or the United States’ proposed or enacted tariffs. Is that part of a larger strategy and who could they be trying to reach with this statement?

Patterson: Speaking in generalities rather than specific names could be an attempt to avoid confrontation, but names aren’t needed right now. In terms of audience, I would guess these leaders want to show they are being active to their domestic audiences as much as they want to remind the United States that they have each other to lean on. 

Kurlantzick: Everyone who reads that statement knows who they are talking about, but it’s particularly ASEAN’s style to criticize subtly and not angrily.

Setser: I second the point made by Josh.