Recently published notes highlighted the structural shift in South-East Asia, where strategic rivalry between the US and China has been playing out (and will continue to do so)
Regional upheaval creates uncertainty but also opportunity
Demography, economic growth and - not least - expectations of democratic governance in the region are the agents of a geopolitical transformation which will compel the Great Powers to realign…but not right away and uneasily
Neither the US, nor China are likely to thrash their priorities in short order
The American concentration on defense and on security will continue to dominate its regional policies but, predictably, development goals will weigh substantially on US diplomacy
China is ASEAN’s biggest trading partner for now, and the country will seek to consolidate its global market share as it diversifies its trade away from the U.S.
Creative diplomatic outreach might win the day for the US
Positives buttressing America's historical influence in the region would open new opportunities
A more inclusive narrative, highlighting American trade and private investment contributions along with steadfast military commitments, might help
To rebalance Chinese pervasive communication efforts, America has to tell its story in clear and undisputable fact
The largest countries in the region - the ASEAN-5: Indonesia, the Philippines, Vietnam, Thailand and Malaysia - expect to be more than just chance spectators of this whirlwind of change
- As bystanders, the SEA-5 would have little say in a military showdown between the US and China
- Acting on the expectations of their large populations and on growing economic prospects, each country is steadfast in shaping its own destinies
Whether fresh South-East Asian (SEA) ambitions will benefit from the fall-out of US regional competition with China is far from assured
The wave of trade diversification across Asia sought by American firms may contribute to the credibility of US commitments if...
....only if growing American trade interests across the entire region cement alternatives to Chinese supply chains
A tall order for ambivalent US policies, seeking to counter China... and to sooth domestic US economic insecurity at the same time
ASEAN-US Trade - progress better left unspoken
A promising multilateral trade agreement went unfulfilled
The withdrawal of the US from the Trans-Pacific Partnership (TPP) between 12 Pacific Rim economies, in the early days of the Trump Administration - in January 2017 - will go down as one of the most counterproductive decisions to American interests ever made
Instead of consolidating relationships in the Pacific Basin by supporting global trade, the US offered a free ride to China's efforts of regional integration under the country's guidance, by way of trade and infrastructure investments
Unsurprisingly, the pursuit of ambivalent US policies - onshoring of manufacturing capacity in America and comforting US influence in the Western Pacific at the same time - offers a muddled prospect
- Policies favoring 'Made in the USA' products are bound to undermine regional US trade partnerships if they are pursued consistently
- Prudent and low-key commercial progress, buried in South East Asian trade statistics, does not really support coherent policies
Outside the planned multilateral TPP framework, US trade relations with each of the SEA-5 countries - Indonesia, the Philippines, Vietnam, Thailand and Malaysia - and with Singapore, will be telling disparate stories for quite some time
Dilatory tactics, assuaging critical security concerns of the SEA countries but withholding broad economic commitments, might have to do for now, at the expense of diplomatic clarity
A closer look at the 2020/2022 Trade in Goods
American imports originating from countries such as Vietnam (23.2% of its GDP) or Malaysia (13.1% of its GDP) in 2020 are markers of growing credibility of these countries' industrial expertise
In % of GDP, based on available 2020 data, the trade statistics also signal the countries that should not be left behind if the US hopes to weigh on South-East Asia's future
- Indonesia, the most populous country with 276 million people, exports just 1.9% of GDP to the US
- the Philippines (106 million people) exports 3.1% of GDP
| Billion USD | '20 GDP | Exports by US | in % of GDP | Imports by US | in % of GDP | US Trade Balance |
| Indonesia | 1 059.9 | 7.4 | 0.7% | 20.2 | 1.9% | -12.8 |
| Philippines | 361.49 | 7.7 | 2.1% | 11.1 | 3.1% | -3.4 |
| Vietnam | 342.94 | 9.9 | 2.9% | 79.6 | 23.2% | -69.7 |
| Thailand | 500.29 | 11.3 | 2.3% | 37.6 | 7.5% | -26.3 |
| Malaysia | 337.28 | 12.3 | 3.6% | 44.1 | 13.1% | -31.8 |
| Singapore | 345.29 | 26.9 | 7.8% | 30.8 | 8.9% | -3.9 |
| Total | 2 947 | 75.5 | 223.4 | -148 | ||
| source - USTR - 2020 Goods exports / imports - Pininvest | ||||||
On the whole, US Goods Import-Export compares more favorably than might be expected with China's 'Merchandise' Trade (referring presumably to Goods as well)
US imports from the ASEAN-5 ($223.4 billion) stand up well against China's imports, which benefit from physical proximity and supply chain integration ($289 billion)
- According to the US Trade Representation (USTR), electrical machinery ($72.9 billion) and machinery ($29.9 billion) alone represented close to half of total US imports from the region
| Billion USD | '20 GDP | Exports by China | Exports by US | Imports by China | Imports by US | |
| Indonesia | 1 059.9 | 41 | 7.4 | 37 | 20.2 | |
| Philippines | 361.49 | 42 | 7.7 | 19 | 11.1 | |
| Vietnam | 342.94 | 114 | 9.9 | 78 | 79.6 | |
| Thailand | 500.29 | 51 | 11.3 | 48 | 37.6 | |
| Malaysia | 337.28 | 56 | 12.3 | 75 | 44.1 | |
| Singapore | 345.29 | 58 | 26.9 | 32 | 30.8 | |
| Total | 362 | 75.5 | 289 | 223.4 | ||
| Source - 2020 data - USTR (US data) - ISEAS / GAC (China data) | ||||||
For the strongest SEA countries in the Chinese supply chain (Vietnam and Malaysia), globalization turns out to be an opportunity to broaden trade venues and balance China's strong pull with US trade
This is especially the case for Vietnam...
Vietnam-US Trade - in the lime light
2021 / 2022 (Jan.-Nov.) US import data signal further momentum of US imports from the SEA-5 - resulting in growing US trade deficits, from $148 billion (2020) and $183 billion (2021) to $197 billion (to Nov. 2022)
Vietnam stands out, generating half the US trade deficit with the SEA-5, presumably on the strength of manufacturing hubs transfered from China
| Imports by US | US Trade Balance | |||||
| Billion USD | 2020 | 2021 | 2022-11m | 2020 | 2021 | 2022-11m |
| Indonesia | 20.2 | 27 | 32 | -12.8 | -18 | -23 |
| Philippines | 11.1 | 14 | 15 | -3.4 | -5 | -6 |
| Vietnam | 79.6 | 102 | 119 | -69.7 | -91 | -108 |
| Thailand | 37.6 | 47 | 54 | -26.3 | -34 | -40 |
| Malaysia | 44.1 | 56 | 51 | -31.8 | -41 | -34 |
| Singapore | 30.8 | 29 | 29 | -3.9 | 6 | 14 |
| Total | -148 | -183 | -197 | |||
| source - US Census Bureau | ||||||
Vietnamese exports to the US are on track to increase by more than 60 % in just two years - 79.6 billion US dollars in 2020 and a projected 130 billion US dollars in 12-months 2022
Chinese trade with the US may not be faltering (given its size) but Vietnam could represent close to 30% of China's exports to the US in 2022 ... and growing
Over the past 7 years, US trade with China has been marking time in a fairly narrow band, leaving the US deficit unchanged
| China | Exports by US | Imports by US | US Trade Balance | |
| 2016 | 116 | 462 | -347 | |
| 2017 | 130 | 505 | -375 | |
| 2018 | 120 | 538 | -418 | |
| 2019 | 106 | 449 | -343 | |
| 2020 | 124 | 433 | -308 | |
| 2021 | 151 | 505 | -353 | |
| 2022 11m | 140 | 499 | -359 | |
| in billion USD | source - US Census Bureau | |||
Even more to the point, from an American perspective, as of November '22, the US trade deficit with Vietnam ($108 billion) equals 30% of the deficit with China ($359 billion) or the deficits with Japan ($61 billion) and South Korea ($40 billion) combined
The increase in the US trade deficit with Asian countries today originates mainly in the SEA-5 (plus Taiwan and South Korea), not China
Unsurprisingly, the sourcing from new trade hubs is driven by foreign firms actively seeking to diversify their manufacturing facilities across Asia, away from China
With one caveat...
However successful Vietnam has been, limited specialized professional expertise and constraints of manufacturing hubs will weigh on production costs, blunting the ambitions and competitive advantages of SEA countries for years to come
With a $197 billion trade deficit as of November 2022, the US would of course prefer a more balanced trade of goods with the ASEAN countries
But by removing Vietnam from the list of countries suspected of monetary manipulation, as of November '22, the US Administration underscored where its priorities were lying
Clearly supportive of Vietnam, regional geopolitical significance of US trade policy will still have to wait for Malaysia as well as struggling Philippines and aloof Indonesia to become significant trading partners
US trade in South-East Asia remains a work in progress - not a grand strategy (yet) but chances are the pieces of the puzzle could actually fall into place
Diversification of US manufacturing locations are already boosting economic growth prospects across Asia
Though counterintuitive for US policy makers bent on bringing jobs home to America, supportive SEA governments might bolster US control over essential supply chains
... balancing US interests with South East Asia ambitions
Fit for purpose, Investments are Magnetic Fields, an approach we expect to discuss in short order