It is well-known that Australia and Southeast Asia have many shared economic interests, particularly in terms of our trade, investment and people-to-people links. However, an issue of shared interest that has received less attention is the rise of geoeconomic competition.
Geoeconomics – the application of economic instruments for geopolitical ends – has become a fact of life in the Indo-Pacific. As international rivalries have re-emerged between major powers, many governments have turned to economic tools to advance their strategic agendas. This is particularly true of the US and China, which have each used geoeconomic strategies to prosecute their great power rivalry.
As a result, several geoeconomic battlegrounds have emerged in the Indo-Pacific in recent years. The first is trade warfare, particularly the massive US-China trade war that has seen tariffs applied to $735 billion of bilateral trade. This is followed by infrastructure races, catalysed by China’s Belt and Road Initiative that uses infrastructure investment as a means to project economic power. Finally there’s institutional competition, including between the two ‘mega-regional’ free trade agreements: the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and Regional Comprehensive Economic Partnership (RCEP).
These forms of geoeconomic competition are a serious threat to the national interests of both Australia and ASEAN. We are all either small or medium-sized economies, and lack the heft to engage in geoeconomic battles with great powers on our own. We are also open economies, which means that interruptions or distortions – such as the Chinese trade sanctions that Australia weathered in 2020 – have an outsized effect on our economies.
But perhaps most significantly, both Australia and ASEAN are highly dependent on an open and rules-based economic order. Our shared economic story since the 1980s is one of regional integration through trade and investment, which has opened a huge number of economic opportunities that would not have existed otherwise. When geoeconomic competition undermines these institutions it threatens the global and regional architectures on which our shared prosperity depends.
Until now, ASEAN and Australia have tried to “defend” against geoeconomic threats largely on our own. When there are complex rivalries over infrastructure, Southeast Asian countries have managed their investment ties with China, Japan and others individually. When there are coercion trade sanctions from China – as experienced by Vietnam, the Philippines and Australia at various times – we respond bilaterally. And when WTO functions break down due to US vetoes, we have made individual and largely ineffective representations.
The core problem is that these individual responses are unlikely to work. A medium-sized economy like Indonesia, Australia or Malaysia has limited capability to push back against the geoeconomic plays of a great power; and the smaller developing country members of ASEAN almost none. If we continue to go-it-alone on geoeconomic competition, we will never achieve good results.
However, given the fact that Australia and ASEAN share an interest in protecting the rules-based economic order there is a clear opportunity to make this part of our agenda. This will require rethinking the nature of the Australia-ASEAN economic relationship, which has until now been focused on ‘what we have between ourselves’. If we are to jointly respond to geoeconomic risks, we will need to raise our horizons to engage with the economic behaviour of the great powers as well.
Indeed, we have already begun moving in this direction. The RCEP, signed in November 2020, is a critical plank in the defence of the rules-based economic order. It is the largest regional trade agreement ever signed, and establishes an integrated trade bloc amongst all major economies in the Indo-Pacific.
RCEP demonstrates the utility of multilateral strategies for economic cooperation. Contrary to some views, it is not a “China-led” trade bloc. RCEP is an agreement centred on ASEAN, whose rules and provisions reflect the economic and developmental needs of Southeast Asian economies. It also includes Japan, Korea and Australia, ensuring that all major economies in the region are present. It therefore binds great powers like China into a rules-based framework for regional integration.
However, there is more that Australia and ASEAN could do. One important domain is the global trade architecture, where the WTO is facing a twin crises of having existing mechanisms (the Appellate Body) fail, while also being unable to forge ahead new agreements. By coordinating our contributions, we can achieve significantly greater results. Developing mechanisms for this coordination will be a critical “force multiplier” for Australia and ASEAN in global economic governance.
Dr Jeffrey Wilson is the Research Director at PerthUSAsia Centre. This piece was first published in the La Trobe Asia Brief Issue 5 - Australia-Southeast Asia Relations: The post COVID-19 regional order.