A Trump trade war with China would be very bad for South-East Asia

Sholto Byrnes

2025 should be a pivotal year for South-East Asia – at least according to Anwar Ibrahim, Prime Minister of Malaysia, which has just taken over as chair of the Association of South-East Asian Nations.

The group of 10 countries is likely to admit a new member for the first time since 1999, if Timor-Leste gets the go-ahead, thus “expanding the community to encompass the entirety of geographical South-East Asia”, as Mr Anwar put it in a recent essay. He also wrote that the region of more than 660 million people is on the brink of “a second renaissance that benefits all”, based on a strategic long-term plan, the Asean Community Vision 2045.

To do so, Asean must build “a rules-based regional order … that not only safeguards prosperity but also enhances South-East Asia’s stability while navigating tensions between great powers”.

Mr Anwar listed as key pillars the necessity to preserve both strategic autonomy and Asean unity; ending the civil war in Myanmar; distancing Asean from the “excesses of unchecked capitalism” and “the distorting influence of state-subsidised trade from outside powers”; engaging more deeply with Asean-plus partners in the Asia Pacific, as well as the Brics group (several Asean members are already officially Brics partners), and more widely, specifically mentioning the Asean-GCC-China summit due to take place this year; and influencing, rather than just participating in, the global economy, governance and cultural narratives.

Mr Anwar’s aims are ambitious, but not unexpected.

Malaysia has a history of being a highly active chair of Asean, as I saw first-hand as a senior fellow at the national think tank the last time the country was the group’s chair, in 2015. That year the Asean Economic Community was declared, which envisioned the region as a single market and production base, with a free flow of goods, services, investments, capital and labour.

One senior official even suggested the group change its name to “the Asean Community” to mark the importance of the change, just as the European Economic Community had become the European Community in 1993 with the launch of its single market.

All of this, however, will (or won’t) take place against an uncertain backdrop. Just what will the incoming US administration’s policies be concerning China? President-elect Donald Trump has threatened to put tariffs of up to 60 per cent on all imports to America from China. But the region knows well, as independent Singapore’s founding father, Lee Kuan Yew, used to say: “When elephants fight, the grass suffers.”

Countries including Malaysia, Vietnam and Thailand benefitted from the first Trump administration’s trade war with China, as factories relocated to create new supply chains. But Mr Trump’s second White House will be filled with hawks who are well aware of these “workarounds”. Asean countries fear both being cracked down on themselves and the wider implications of new and escalating rounds of tit for tat – for Beijing is ready with its own retaliation if Mr Trump goes through with his threat.

“Protectionism and trade wars lead only to recession, conflict and poverty,” Vietnamese President Luong Cuong warned at an Apec summit in November. “Now more than ever it’s critical to transcend the zero-sum game mindset and guard against nationalism skewing policy decisions.”

Good luck with persuading Maga partisans of that. There may, however, be reasons for cautious optimism. Chinese officials and organs are going out of their way to be conciliatory to Mr Trump and underline the gains to be made from “win-win co-operation” rather than pursuing “vicious competition”, as an editorial in the China Daily put it yesterday.

“Dialogue and cooperation remain the only right choice for the two countries,” it argued, pointing out that: “The total trade between China and the US has exceeded $660 billion. Over 70,000 American companies are doing business in China, earning a profit of $50 billion annually. In terms of employment, exports to China alone support 930,000 jobs in the US. Chinese products have not only offered American customers more choices, but also lowered costs for them, and Chinese investment has not only created more jobs in the US, but also bolstered local economies.”

In a recent interview Victor Gao, vice president of the Centre for China and Globalisation in Beijing, and a very eloquent and persuasive proponent for his country, praised Mr Trump’s victory and his bearing after the attempted assassination on him. He said that, “in my view there is no competition between the US and China”, explaining that would only be the case if one was trying to impose its system of governance on the other.

Mr Gao argued that tariffs would only hurt the American people, and said if there were worries about Taiwan, should it reunify with the mainland, there was no reason why the island should not be turned into a giant free trade zone, with China guaranteeing continued exports to the US of “semi-conductor chips of all kinds”.

We can’t know if these placatory expressions will persuade Mr Trump. But I do think his unprecedented invitation for Chinese President Xi Jinping to attend his inauguration was a very welcome gesture, even if Mr Xi is unlikely to go.

South-East Asian leaders realise the importance America’s incoming president places on one-to-one relations. Several were effusive with their praise after his election win.

Malaysia’s Mr Anwar told him it was a “remarkable political comeback and victory”. Philippine President Ferdinand Marcos Jr said: “I know that his robust leadership will result in a better future for all of us.” Cambodian Prime Minister Hun Manet told Mr Trump: “Under your wise leadership, I am confident that the indispensable US role in promoting stability, security and prosperity will be further strengthened.” Indonesian President Prabowo Subianto went one better and filmed himself phoning Mr Trump to offer his congratulations.

All will need to continue to appeal not just to the transactional side of Mr Trump, but also to the sunny, more joyful aspect of his nature which is there, even if his critics refuse to accept it exists. For a trade war between the two elephants wouldn’t just flatten South-East Asia’s “grass”, it could derail ambitions and lead to devastating fractures, rather than unity, in the region.

So avoiding one is crucial. The “second renaissance” Mr Anwar hopes for depends on it.