Engaging Southeast Asia: Economic Recommendations for the New Administration

The incoming Trump administration will encounter a Southeast Asia region significantly transformed from the one that the previous administration began to work with eight years ago. The region today is an integral part of the larger Asia Pacific that has the opportunity to play a key role in propelling U.S. trade and jobs in the decades ahead. For the United States to snare the full benefits of this region and maintain leadership in broader regional dynamics will require that the new administration develop a strategy that has regional economic engagement at its core.

Southeast Asia provides stellar economic opportunities for U.S. companies, workers, and farmers. Southeast Asian countries collectively make up a $2.5 trillion economic area and are home to 630 million potential customers for U.S. goods and services, creating the third-largest economy in Asia after China and Japan. These countries collectively are also the United States’ fourth-largest goods trading partner, ahead of Japan, with two-way trade in goods between the United States and ASEAN topping $234 billion and supporting over 500,000 jobs in the United States. U.S. direct investment in ASEAN countries, which totaled $226 billion at the end of 2015, exceeds the foreign direct investment in the region from China, Japan, and South Korea combined.

In recent years, the regional trade agenda has been driven by the Trans-Pacific Partnership (TPP), which would link 12 Asia-Pacific economies representing 40 percent of the global gross domestic product. The TPP has been the centerpiece of U.S. economic policy toward the region, and it includes 4 of the 10-member ASEAN grouping (Brunei, Malaysia, Singapore, and Vietnam). Three other ASEAN countries—Indonesia, the Philippines, and Thailand—have expressed interest in joining the TPP, which clearly shows interest in U.S.- promoted economic initiatives.

With TPP implementation now in doubt under the new Trump administration, other regional initiatives have taken on more importance. The ASEAN Economic Community (AEC) launched at the end of 2015 aims to integrate the members of ASEAN into a single zone of production and consumption. Although ASEAN has a way to go before achieving that reality, the AEC may provide a firmer base for “ASEAN-plus” trade arrangements, including the Regional Comprehensive Economic Partnership (RCEP) that will link ASEAN to six trading partners including China, Japan, and Korea—but not the United States.

To be sure, the United States is facing new challenges in the region, including slowing economic growth and rising economic nationalism. China is using its growing economic clout to exert more influence in the region both militarily—in the South China Sea by building airstrips on reclaimed islands—and economically—by providing trade, credits, and infrastructure construction that will tie it more closely to regional economies. Southeast Asian countries do not want to be pressed to choose between Beijing and Washington, but they do want the United States to serve as a hedge against overdependence on China.

Several countries in the region have undergone government changes in recent months that affect either their economic policymaking or how the United States can engage with them, or both. In the Philippines, a new government led by President Rodrigo Duterte, which took office last June, appears to have adopted an outward-looking economic agenda, but Duterte’s openness to greater cooperation with the United States remains uncertain as he seeks to boost ties with China and Russia. Indonesia, the largest economy in Southeast Asia, is held back economically by a raft of protectionist measures and the government’s flirtation with economic nationalism to protect domestic companies from competition from foreign investors.

Despite significant economic engagement by U.S. companies, there is a strong perception among regional government and business leaders that U.S. economic presence and leadership lag far behind security cooperation. This perception has deepened significantly with negative rhetoric directed at the TPP by both the Donald Trump and Hillary Clinton presidential campaigns. Many Southeast Asian nations believe that Washington does not have a coherent plan to engage the region economically, at a time when most regional governments value getting their economic houses in order above virtually everything else.

With these dynamics at play, the Southeast Asia Program at CSIS teamed up with CSIS’s Simon Chair in Political Economy and Scholl Chair in International Business to convene an Asia Economic Strategy Commission to formulate a reinvigorated strategy for U.S. economic engagement with Asia. The commission, cochaired by Charlene Barshefsky, Evan G. Greenberg, and Jon M. Huntsman Jr., just published its report, Reinvigorating U.S. Economic Strategy in the Asia Pacific: Recommendations for the Incoming Administration. You can read the full report here. The report makes the following recommendations:

1. Articulate a clear vision of the United States as a Pacific power: Starting with the inaugural speech, the new president should make clear to the American people, in words and policies, that the United States is a Pacific power and that robust trans-Pacific exchange is critical to our future prosperity and security.

2. Complete the TPP, and continue working to open markets and strengthen rules in the Asia Pacific : Ratification of the TPP—fixed as needed—is critical to U.S. credibility in Asia and to our role as champions of a rules-based order following Western norms. The new administration should work toward its eventual passage and in the meantime continue to promote liberalization and high-standard rules like those in the TPP.

3. Take action to ensure that the U.S.-China relationship is mutually beneficial : A mutually beneficial U.S.-China economic relationship is strongly in U.S. interests. However, the relationship is currently out of balance. The new administration should continue to pursue cooperation with Beijing where possible, while responding forcefully to Chinese practices that harm U.S. interests.

4. Take action to maintain U.S. technological leadership: America’s comparative advantage in technology is vital to our prosperity and security. In addition to making the right investments in innovation at home, the new administration must work to ensure high, open standards for technology internationally and protect U.S. intellectual property.

5. Bring U.S. strengths to the infrastructure push across Asia: Washington needs a more coherent strategy for U.S. involvement in the current infrastructure investment push across Asia. The strategy should be built around U.S. strengths, including commitment to the rule of law, transparency, and world-leading companies.

6. Update and uphold the Asia-Pacific economic architecture: The new administration should work with partner countries and the private sector to strengthen and streamline economic institutions that support a rules-based order in the Asia Pacific, such the Asian Development Bank (ADB) and the Asia-Pacific Economic Cooperation (APEC) forum. It should also participate more fully in the economic dimensions of ASEAN cooperation.

7. Work with Congress to rebuild U.S. leverage and fully resource U.S. priorities in Asia : The new administration should assess the adequacy of current spending to support U.S. economic priorities in the Asia Pacific and identify where additional investments are needed, review measures available under current law to address unfair economic policies, and work with Congress to enhance U.S. resources and leverage.

8. Build an effective interagency Asia economic team coordinated by the White House : The new administration should update its policymaking apparatus to reflect the critical importance of economic tools in a comprehensive strategy toward the Asia region, and improve coordination across the U.S. government and with stakeholders.

(This Commentary originally appeared in the January 12, 2017, issue of Southeast Asia from Scott Circle.)

Dr. Amy Searight is a senior adviser and director of the Southeast Asia Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Murray Hiebert is a senior adviser and deputy director of the program.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

© 2017 by the Center for Strategic and International Studies. All rights reserved.

Murray Hiebert
Senior Associate (Non-resident), Southeast Asia Program

Amy Searight