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Hedging Harder: Southeast Asia and the US-China Rivalry

“I think it’s very desirable for us not to have to take sides, but the circumstances may come when ASEAN may have to choose one or the other. I am hoping that it’s not coming soon.”
Prime Minister Lee Hsien Loong, 15 November 2018¹

“Over the five, 10, 25-year time horizon, just by simple demographics and wealth, as well as by the internal system in that country, China presents the greatest challenge that the United States will face in the medium to long-term.”
Secretary of State Michael Pompeo, 10 December 2018²

One of the Obama administration’s first major Asia policy decisions was to sign the Treaty of Amity and Cooperation in Southeast Asia, a prerequisite for an ASEAN invitation to the East Asia Summit (EAS). One of the first major Asia policy decisions of the Trump administration was the president’s instruction on August 14, 2017 to the US Trade Representative (USTR) to investigate, “China’s laws, policies, practices, or actions that may be unreasonable or discriminatory and that may be harming American intellectual property rights, innovation, or technology development” under Section 301 of the 1974 Trade Act.³

Each of these became pillars of the respective administrations’ very different approaches to Asia. The Obama administration’s “Asia rebalance” focused on Southeast Asia and ASEAN-led regional institutions; envisioned China more as a potential major power partner than a peer rival; addressed regional concerns about America’s “staying power” in Asia; and spared regional states from having to choose between the United States and China. Two years into office, the Trump administration’s “Free and Open Indo-Pacific” (FOIP) policy has crystalized. It recognizes China as a long-term peer rival of the United States and is focused on not ceding leadership to Beijing in Asia. FOIP favors unilateral actions, and loose mini-lateral cooperation with states that have similar views of China and significant capabilities. The Obama administration’s “Asia rebalance,” by design, facilitated Southeast Asian states’ long-standing strategies of hedging against individual major powers that includes engaging (entangling) them in ASEAN-led institutions.⁴ The Trump administration’s FOIP will complicate or undermine these strategies.  

The FOIP takes shape⁵ 

As became clear over the course of 2018, the FOIP’s central organizing principle is full spectrum competition with China. In a series of op-eds and speeches—the most noteworthy being Vice President Mike Pence’s speech at the Hudson Institute in October⁶—the Trump administration ramped up its criticism of Chinese statecraft, including unfair trade practices and theft of US intellectual property, interference in the domestic politics of other countries (including America), aggression in the South China Sea, and undermining the sovereignty of states participating in President Xi Jinping’s signature Belt and Road Initiative (BRI).

FOIP is meant to offer Indo-Pacific states an alternative vision to a nascent Sinocentric order, the foundation of which is BRI. In contrast to China’s grand Eurasian infrastructure project, the Trump administration argues, FOIP offers business-led investment, freedom of the commons, and transparent and responsive government.⁷ In a thinly veiled reference to China, at the US-ASEAN summit in Singapore, Pence railed against “empire and aggression,”⁸ and at the APEC summit in Papua New Guinea he asserted that America was “seeking collaboration not control,” bilateral free trade agreements based on “fair and reciprocal trade,” and, unlike China, the US did not “drown our partners in a sea of debt” or offer a “constricting belt or a one-way road.” Pence was uncompromising, warning that America “would not change course until China changes its ways.”⁹

FOIP is not the brainchild of Donald Trump. In many ways it is a product of growing unease and criticism of Chinese statecraft in the United States from the country’s business leaders, politicians across the political spectrum, the national security establishment, and human rights groups. It is also a reluctant admission that America’s five-decade old engagement policy with China has not resulted in favorable outcomes: that contrary to expectations, as China grew richer it did not become more liberal nor a “responsible stakeholder,” but more authoritarian at home, aggressive overseas, and a “revisionist power” bent on overturning the rules based international order. This suggests that had Hillary Clinton won the 2016 presidential election instead of Trump, her administration would have pursued a similar hard-nosed policy against China too. It also suggests that the Trump administration’s stance toward China will be carried over into future administrations. 

Defense policy

The Trump administration identified China as its primary strategic competitor in late 2017, and a central element of the FOIP is enhancing security cooperation with countries in the Indo-Pacific to counter Beijing’s growing regional clout.¹⁰ To that end, the administration has revived the Quad grouping of the United States, Japan, Australia, and India, increased security assistance to regional states, and stepped up pressure on Beijing in the South China Sea. The Quad remains an amorphous entity, and cooperation thus far has been limited to ministerial meetings on the sidelines of larger gatherings such as the EAS in Singapore in November 2018. The Quad is best viewed as a forum for four democratic and maritime states to discuss common concerns, i.e. China. The bilateral relationships between the US and each of the other three members are stronger than the grouping as a whole. India is seen as the weakest link because of its underdeveloped defense relations with both Japan and Australia, and because it is keen not to be seen as an enthusiastic participant in an arrangement which China views as a US tool of containment. The Quad remains a work in progress.

According to the administration, in 2018 the United States doubled the amount of security assistance to Indo-Pacific states to $500 million and made defense sales of $9.42 billion.¹¹ In Port Moresby, Pence announced that the United States and Australia would upgrade the Manus Naval Base in Papua New Guinea, an initiative widely seen as a policy response to growing concern in Washington and Canberra over Beijing’s rising influence in the South Pacific. On the South China Sea, the Trump administration has stepped-up criticism of China’s militarization of the dispute—especially its construction of military facilities on and deployment of offensive capabilities to its seven artificial islands in the Spratlys—and increased the frequency of “freedom of navigation operations” (FONOPs) around Chinese-occupied features. Since Trump took office, the US Navy has conducted nine FONOPs in the South China Sea, averaging one every two months. However, FONOPs have not deterred China from completing the military facilities on its manmade islands and has fed into Beijing’s narrative that it is America and not China that is militarizing the dispute and stirring up tensions.

Economic policy

The FOIP economic policy features both unilateral policies against Chinese ones deemed unfair, and unilateral and mini-lateral policies to provide regional countries alternatives to China. The Super 301 investigation of China ordered by Trump provides the basis for the trade remedy actions taken by the US government in the current ‘trade war’ with China. The USTR review released in November 2018 indicates that China has not responded in a satisfactory manner to American unfair trade concerns. In the same month, the US Department of Justice announced a China Initiative to “identify priority Chinese trade theft cases, ensure that we have enough resources dedicated to  them,  and  make  sure  that  we  bring  them  to  an  appropriate  conclusion  quickly  and effectively.”¹² These two initiatives will likely broaden the economic concerns the United States will act on in relation to China.

In October 2018, after a resounding Senate vote of 93 to 6 in favor, the BUILD Act passed into law creating the US International Development Finance Corporation. This law, through this new agency, will more than double the US government’s overseas development financing capabilities.¹³ On November 12, the governments of the US, Japan, and Australia agreed that their development financing bodies should cooperate to support projects in the Indo-Pacific.¹⁴ That same week, the three governments and New Zealand and Papua New Guinea agreed during the APEC summit in Port Moresby to work together to significantly enhance the host country’s electricity grid.

Southeast Asian worries

The FOIP, buffeted by the bombastic rhetoric of Trump or his lack of sustained interest in the concept, has aggravated three long-standing Southeast Asian concerns about US policy toward Asia. First, Southeast Asian states worry at the beginning of each US administration about how much attention will or will not be paid to Southeast Asia, and whether US policy toward the region will be a derivative of US policy in Northeast Asia. The abnormally high level of attention paid to Southeast Asia and ASEAN by the Obama administration meant that any succeeding administration would appear less committed in comparison. The initial focus of the Trump administration on gaining Southeast Asian states and ASEAN’s support for the US-led maximum pressure campaign on North Korea aggravated these worries. Trump’s only visit to Asia in 2018 was for the Trump-Kim summit in Singapore in June. The only Southeast Asian leader to meet with Trump in 2018 was Prime Minister Lee Hsien Loong of Singapore when Trump was in town for the summit.

Second, an allied worry is how committed (or not) the US administration is to the ASEAN-led regional bodies that include America, and how respectful it will be, in practice, of ASEAN’s claims to “centrality” in Asia-Pacific multilateralism. The negative reactions in Southeast Asia to FOIP and the occasional quadrilateral meeting among (not the most) senior officials of the United States, Australia, Japan, and India is testament to how much this worry has been aggravated.¹⁵ The Quad does not include any Southeast Asian state or China and is the organizational antithesis of ASEAN’s formal, “inclusive” approach to regional cooperation. The Indo-Pacific is a broader geographical concept than the Asia-Pacific one that held sway in the post-Cold War era when ASEAN began to make its claims to centrality. In addition to being perceived as undermining ASEAN centrality, Southeast Asians recognize that Beijing views the Quad with hostility. For these two reasons, ASEAN will not endorse FOIP (not that the United States is asking for endorsement).

A litmus test for this ASEAN-passing worry is whether the most senior US officials show up to meetings of ASEAN-led bodies and events. Trump’s decision to not attend the ASEAN-US summit and EAS in November 2018 in Singapore was a failure of this test. Lee’s comments cited above reflect the deepest and most complex of the three worries, the damaging effects of US-China rivalry for Southeast Asia. The greatest damage would be if this rivalry grows in intensity and scope to the extent that Southeast Asian hedging strategies become impossible to maintain. Making matters worse, if the US-China rivalry forces Southeast Asian states to side with one rival over another, it is likely that not all ten  states would side with the same rival. In one fell swoop claims to ASEAN centrality and unity would implode. The US-China rivalry has yet to reach this level of intensity.

While fretting that this future may come soon, Southeast Asian states are also worried about the collateral damage they may suffer from the current stage of US-China rivalry. Indonesia’s finance minister wrote in December 2018 on her worries about the collateral damage for emerging economies of the US-China trade war.¹⁶ In March 2018, Trump blocked the takeover of the US microchip maker Qualcomm by Singapore-based Broadcom on the national security grounds that Chinese competitors may gain greater access to US-created frontier technologies.¹⁷ More cases like this are likely as The National Defense Authorization Act for Fiscal Year 2019 broadens the number of foreign investment transactions that can be modified or stopped on national security grounds.¹⁸

Southeast Asian states have mixed feelings about America’s South China Sea policy. On the one hand, some ASEAN members quietly applaud US FONOPs because they are not willing to carry out such operations themselves for fear of incurring Beijing’s wrath. And truth be told, few Southeast Asian governments believe that an ASEAN-China Code of Conduct for the South China Sea (currently being negotiated) will ameliorate tensions or change China’s assertive behavior. On the other hand, Southeast Asians also worry about the prospect of increased US-China tensions in the South China Sea and the negative impact on regional stability. The new “Mahathir Doctrine,” which calls for “no warships in the South China Sea,”¹⁹ while completely unrealistic and inconsistent with the UN Convention on the Law of the Sea, is an expression of this concern. 

Hedging harder

Southeast Asian hedging strategies are about encouraging the major powers being hedged against to do and not do certain things in relation to the hedging states. The Obama administration’s “Asia rebalance” in Southeast Asia aspired to do, and not do, what Southeast Asian states wanted: “showing up” to ASEAN; having a positive regional trade agenda centred on the Trans-Pacific Partnership; gently pushing back against China in the South China Sea without provoking a crisis; not defining China as a revisionist power and full-spectrum rival; and not seeing US policy in Southeast Asia as a derivative of US policy toward China.

The Trump administration’s FOIP is less accommodating to Southeast Asian states’ hedging desires. On the positive side, the FOIP has led to a significant increase in US development finance and closer cooperation with Japan and Australia. This provides more alternative funding and capacity-building support for Southeast Asian states to mitigate risks associated with BRI. Under the FOIP, the number of US freedom of navigation and overflight operations in the South China Sea and American defense spending in Southeast Asia have increased as well. However, the FOIP’s central strategic judgment that China is a full-spectrum, long-term strategic rival of America means that US policy toward Southeast Asia will be derivative of US-China rivalry. Its favoring of unilateral actions and loose mini-lateralism undercuts the importance to the United States of inclusive ASEAN-led bodies like the EAS that include the United States and China. Trump’s likely absence from the EAS in 2019 after not showing up in 2018 would be particularly worrying for Southeast Asian hedgers. The fact that no Chinese president has ever shown up to the EAS simply provides another reason for the US president to do likewise.

Southeast Asian state are likely to respond to the FOIP by hedging harder. What else can they do? Their worries are justified. Hedging harder when it is much harder to hedge is not good. However, it is still better than the situation Lee warned about when hedging becomes impossible.