COMPETING WITH CHINA IN SOUTHEAST ASIA: THE ECONOMIC IMPERATIVE JONATHAN STROMSETH EXECUTIVE SUMMARY demonstrate high standards and best practices in collaboration with key regional partners. As great power rivalry intensifies in Southeast Asia, China is increasingly achieving its strategic • Establish a regional center for strategic goals in the region through economic statecraft economic engagement: To galvanize — illustrated most vividly in its signature Belt and cooperation with allies and partners, Washington Road Initiative (BRI) — and economic factors are should appoint a special infrastructure envoy to playing a prominent role in shaping the choices of lead a new regional center at the U.S. embassy Southeast Asian leaders on policy issues that divide in Singapore. The center should be staffed Washington and Beijing. Security concerns will by representatives of the U.S. International continue to resonate within this decision-making Development Finance Corporation, U.S. Agency calculus, of course. Southeast Asian countries can for International Development, U.S. EXIM Bank, be expected to push back against Beijing (and be and U.S. Department of State. more open to U.S. policy positions) when they feel threatened by China, especially where territorial • Explore the costs and benefits of joining the integrity is concerned. These concerns will provide Comprehensive and Progressive Agreement a continuing opening for Washington in the security for Trans-Pacific Partnership (CPTPP): When domain. Yet, the security-centric paradigm that has the Trump administration withdrew from TPP long guided American thinking is an insufficient lens negotiations in January 2017, the United through which to view and understand the region. As States effectively ceded economic leadership Southeast Asia begins to recover from the COVID-19 to China in the Asia-Pacific. The U.S. should pandemic, the United States must also improve its explore returning to the TPP family, starting economic game in a region where China has come with Congressional hearings that examine the to dominate trade and tourism and is matching if costs and benefits, assess the impact on the not exceeding Japan in infrastructure investment. American workforce and middle class, and The objective shouldn’t be to confront BRI and identify possible areas for renegotiation. create a bifurcated region, imposing choices that could end up marginalizing the United States over • Deepen bilateral ties with emerging partners time, but to develop compelling alternatives and like Vietnam: Washington should establish then reengage China from a position of strength. a “strategic partnership” with Hanoi before the end of 2021. This would signal that U.S. To compete with China and sustain American relationships are innovative and growing in power and influence effectively, Washington should Asia and could facilitate broader development take the following steps to improve its economic cooperation in mainland Southeast Asia. A standing in the region: central component of the partnership should be expanding economic ties with a country • Operationalize infrastructure coordination expected to be the world’s fastest growing in Southeast Asia with allies and partners: economy this year, having controlled COVID-19 The U.S. should operationalize existing multi- with remarkable success. country platforms to facilitate infrastructure investments in the region. Washington shouldn’t • Revitalize and reframe foreign aid cooperation miss this opportunity to compete with China, with the region: The Trump administration produce benefits for American investors, and presented foreign aid and development as 1 COMPETING WITH CHINA IN SOUTHEAST ASIA: THE ECONOMIC IMPERATIVE a “Journey to Self-Reliance,” but today’s partners like Singapore and key emerging partners development needs increasingly emanate from such as Vietnam and Indonesia. Taken together, global governance challenges like pandemics the 10 countries that make up the Association of and climate change — challenges that require Southeast Asian Nations (ASEAN) boast the third multilateral solutions. Going forward, in part to largest population in the world at 650 million. In protect America’s economic future, the United addition, ASEAN is the fifth largest economy in the States should expand support for regional efforts world with a gross domestic product (GDP) of $2.8 addressing these urgent global challenges. trillion and the top destination for U.S. investment in the Indo-Pacific at $329 billion (more than the • Reengage China on select issues like climate United States has directed to China, Japan, South change: Washington should coordinate with Korea, and India combined). Almost 42,000 U.S. China to combat climate change in Southeast companies export to ASEAN countries, supporting Asia, a maritime region that is particularly about 600,000 jobs in the United States.1 vulnerable to global warming. The U.S. could work with Beijing to establish a multi-donor Yet, while the stakes are high, the region is trust fund at the World Bank, to which third confused about the objectives and focus of countries could apply for climate support, or U.S. policy. At a trilateral dialogue organized by simply encourage co-financing from regional Brookings in Singapore in late October 2019, development banks to address this issue. just before COVID-19 emerged in Wuhan, experts from Southeast Asia asked tough and probing THE PROBLEM questions about U.S. Asia strategy in the context of escalating U.S.-China rivalry. Southeast Asian The U.S.-led security system has underpinned participants said the United States should better regional peace and stability in East Asia for decades. define the goal of U.S. Asia policy today: Is it to China is now challenging this system as it woos reestablish preeminence, construct a new balance American allies like Thailand and the Philippines, of power, preserve the rules-based order, or seeks to reorient Asia’s security architecture in its some combination of these elements? They said favor, and takes aggressive steps to enforce its far- strategic competition should be a means to an end, reaching territorial claims in the South China Sea. not an end in itself. They also felt U.S. policy was At the same time, China is increasingly achieving too concentrated on defense and security, to the its strategic goals in Southeast Asia through detriment of diplomacy and development, allowing economic statecraft or the use of economic tools China to fill the soft power vacuum and capture the to achieve foreign policy goals. Starting in 2018, narrative through BRI.2 the Trump administration launched some new economic initiatives with allies and partners under U.S. economic engagement with the 10 ASEAN its Free and Open Indo-Pacific (FOIP) strategy, but countries remains substantial. The United States so far these efforts pale in comparison to China’s exports about $75 billion in goods and $31 financial might and growing economic integration billion in services to ASEAN on an annual basis. with the region. Meanwhile, U.S. efforts to brand Washington disburses over $800 million annually BRI as “predatory economics” or “debt-trap in foreign assistance to ASEAN countries, as diplomacy” have failed to resonate with Southeast well.3 This includes support for the new Mekong- Asian countries. The COVID-19 pandemic has only U.S. Partnership, successor to the Lower Mekong increased the policy challenges for Washington as Initiative (LMI) that lasted from 2009 to 2020. China recovers faster from the outbreak, reinforcing Under the new partnership, launched in September its already advantaged economic position and 2020, the U.S. will contribute about $150 million advancing its strategic goals as a result. to support the autonomy, economic independence, and sustainable growth of Mekong partner America’s economic challenge countries, with $33 million of this total coming from the existing Asia Enhancing Development Growth Much is at stake for U.S. foreign policy and American through Energy (EDGE) initiative.4 interests in the region. Southeast Asia not only includes two U.S. allies, but also important security 2 COMPETING WITH CHINA IN SOUTHEAST ASIA: THE ECONOMIC IMPERATIVE Under FOIP, the Trump administration also took the stage of planning, feasibility study, tender, or steps to expand its efforts in the infrastructure currently under construction, Indonesia currently domain. In late 2018, it joined Japan and leads the list at $93 billion, followed by Vietnam Australia to form the Trilateral Partnership for and Malaysia at $70 billion and $34 billion, Infrastructure Investment in the Indo-Pacific respectively.9 to promote sustainable infrastructure based on high standards. Subsequently, it partnered China is also developing new sub-regional with Tokyo in launching the Japan-U.S. Mekong initiatives, such as the Lancang-Mekong Power Partnership, or JUMPP, with an initial U.S. Cooperation (LMC) mechanism, to coordinate BRI commitment of $29.5 million, and created the projects and advance its economic and political Blue Dot Network with Japan and Australia, a multi- ambitions in mainland Southeast Asia. Established stakeholder initiative designed to evaluate and in 2015 among the six countries that comprise certify nominated infrastructure projects based the Greater Mekong Subregion (Cambodia, on high quality standards and principles.5 Yet, China, Laos, Myanmar, Thailand, and Vietnam), few concrete projects have resulted from these the LMC promotes cooperation across