The U.S. must commit to making South and Southeast Asia rich

Fortunately it's a very doable goal.

Tensions are ratcheting up between the U.S. and China. At a recent joint press conference with Japanese Prime Minister Kishida Fumio, President Biden was asked point-blank if the U.S. would intercede militarily to defend Taiwan if China attacked it. His immediate answer: “Yes.”

As when Biden has made similar statements before, the White House quickly tried to walk back the comments, but at this point it’s clear that the U.S. will, in fact, act to defend Taiwan. Chinese state media, as usual, responded with fiery rhetoric:

Hu Xijin 胡锡进 @HuXijin_GT

PLA’s firepower in the Taiwan Straits has long surpassed that of US military. Biden says US military would defend Taiwan - does Biden wish to bring those soldiers back in coffins or let them sink into the Taiwan Straits to feed the fish? So, let’s cherish peace together.

The New York Times @nytimes

Breaking news: President Biden said the U.S. would defend Taiwan militarily if China invaded, appearing to step away from a policy of “strategic ambiguity.” https://t.co/tSqWNtucPI

Meanwhile, Secretary of State Anthony Blinken just gave a speech in which he called China “the most serious long-term threat to the international order”.

And China, realizing that its main ally Russia was far more decrepit and ineffectual than it had believed, is now embarking on a worldwide tour in search of more allies to join an anti-U.S. bloc that it calls the “Global Security Initiative”. Countries it’s trying to court include India and Indonesia. And China’s foreign minister, Wang Yi, has just embarked on a tour of Pacific island nations, which the country will presumably try to ally with in exchange for infrastructure and development funding. Xi Jinping is also enacting various measures to harden China against financial sanctions.

In other words, the people who hoped for a constructive U.S.-China relationship in the first half of the 21st century have now had their hopes conclusively dashed. The two countries may engage in ad-hoc cooperation on certain issues, as the U.S. and USSR did during the Cold War, but overall this is looking much less like a complex “frenemy” relationship and much more like Cold War 2.

Of course, it should go without saying that I want the U.S. to come out on top in this competition, and you should too. Nothing good will come of the kind of global order (or disorder) that China wants to create — a world where, as a Chinese professor recently wrote, “countries are brimming with ambition, like tigers eyeing their prey, keen to find every opportunity among the ruins of the old order.”

And in order for the U.S. to solidify its position vis-a-vis China, it needs allies, and lots of them. China is a much bigger country than the U.S., with four times the population and nearly twice the manufacturing output. This is not a contest that the U.S. can win alone.

The most important allies for the U.S. are the countries of Southeast and South Asia — India, Indonesia, Vietnam, and so on. The Indo-Pacific region is crucial for China’s maritime trade, including crucial energy imports. Much of this trade currently passes through the Strait of Malacca, a problem known as the Malacca Dilemma. More generally, military access to South and Southeast Asia would give either the U.S. or China enormous advantage in a naval conflict in the region.

South and Southeast Asian nations have, in general, no great love for the People’s Republic of China. Relatively recent polls in India, Vietnam, Indonesia, and the Philippines have revealed rising anti-China feelings. This is probably due in large part to the fact that China has territorial disputes with almost all of these countries. This provides the U.S. with a chance to make friends in the region.

So far, however, despite occasional acknowledgement of the importance of this region, U.S. efforts to woo countries in South and Southeast Asia have been inadequate.

In the past, the U.S. approached Southeast Asia via multilateral organizations such as APEC and ASEAN; but as Rush Doshi chronicles in his book The Long Game, China successfully managed to subvert and defang APEC, while ASEAN has been effectively paralyzed by disagreements over how to deal with troublesome members like Myanmar. Under Trump, the U.S. withdrew from the Trans-Pacific Partnership, which included some South and Southeast Asian nations and had attracted interest from many more.

Efforts to woo India have been somewhat more successful, with the development of the Quadrilateral Security Dialogue, which just held an important summit. But more must be done if India is to overcome its lingering distrust of the U.S. over its Cold War era support for Pakistan and its attempts to isolate India over nuclear tests in the 90s.

So what more can be done? The U.S. can help South and Southeast Asia get rich.

Sustaining the South and Southeast Asian growth miracle

Over the past thirty years, most of the countries of South and Southeast Asia have enjoyed an unprecedented economic boom. Living standards have doubled in the Philippines, tripled in Bangladesh, and more than quadrupled in Vietnam. Though this growth miracle often gets overshadowed by China in the American press, the South and Southeast Asian growth story represents about a third of humanity climbing out of poverty.

The reasons for this growth miracle are, to some extent, country-specific. It usually involves some mix of industrial policy, liberalizing reforms, and foreign investment. (Check out my posts on Malaysia, India, Bangladesh, and the Philippines; I’m going to do one about Indonesia soon.) But it’s hard to look at this graph and not imagine that agglomeration effects are playing a big role here. The rise of East Asia established Asia as the economic center of the world, creating spillover benefits for the countries nearby. Now, with costs and risks rising fast in China, foreign investment is looking for greener pastures. And the supply chain tools, methods, and culture that corporations developed outside China are now relatively easy to apply to other countries as well, especially if the geographic location is similar.

This sets the stage for all the countries of South and Southeast Asia to rise together.

But it’s important not to overstate this economic progress; the South and Southeast Asian Miracle still has a very long way to go before these countries are rich. Of all the nations on the chart above, only Malaysia has yet attained anything like rich-world income levels:

Undoubtedly, the beginnings of rapid growth have whetted the appetites of the people in this region for more. But it’s hard for countries to sustain rapid growth across many decades; Sri Lanka, for example, has already hit an economic crisis, and growth in Thailand and India has slowed markedly. At some point, Vietnam, Indonesia, Bangladesh, and the Philippines will all face troubles as well.

This is where the U.S. comes in. During the Cold War, we opened our markets to the products of our three key East Asian allies: Japan, South Korea, and Taiwan. This helped them execute a successful export-led development strategy. Exporting alone didn’t make those countries rich, but it helped raise productivity, boost investment, and create popular buy-in for policies to further boost living standards. (After the Cold War, the U.S. also helped China by opening our markets to their exports — a decision some now regard as a blunder.)

The U.S. can do much the same thing with key South and Southeast Asian nations today that it did with East Asian nations in the previous century. Allowing India, Vietnam, Indonesia, Bangladesh and the Philippines to sell their products in the U.S. largely unimpeded will boost growth by creating a stable, predictable source of demand, and by incentivizing companies in those countries to learn foreign technologies and business models in order to compete internationally.

This will accomplish three goals at once:

1. It will improve and strengthen economic and political ties between the U.S. and its prospective friends and allies in the region.

2. It will make these Asian countries economically stronger and more technologically advanced, and thus more capable of resisting Chinese power.

3. It will help the U.S. reshore production from China to more friendly countries, making our supply chains more resilient in case of a conflict. (This is often called “ally-shoring” or “friend-shoring”.)

The U.S. recently took a tentative step toward a plan like this, with the rollout of the Indo-Pacific Economic Framework (IPEF), a grouping that includes India, Indonesia, Vietnam, and the Philippines:

But as Bloomberg’s Mihir Sharma writes, this proposal is disappointing in its timidity. Americans, traumatized by their experience trading with China and roiled by domestic discontent, have little appetite for free trade, and the Biden administration’s instincts are resolutely protectionist. Sharma writes:

In this part of the world, however, the sprawling and unwieldy framework has been met at best with polite silence — and, behind closed doors, with disappointment and even derision…IPEF brings little concrete to the table…

As an attempt to counter Beijing’s influence, the IPEF falls laughably short of what’s needed. Countries in the Indo-Pacific want two things: access to bigger markets and infrastructure investment…But more market access, in particular, appears to be off the table for the US. The Biden administration’s fear that any movement on trade could lead to political attacks at home from left and right is palpable…If an administration that prides itself on its outreach to strategically important partners is still too scared to increase their access to US markets, then why would any country imagine that closer relations with the US are important to its future?

He is, of course, correct. The U.S. should immediately upgrade IPEF into a trade agreement that gives countries much more access to U.S. markets. To fail to do this would be to cede regional influence to China and to pass up a golden opportunity to acquire powerful allies and secure production bases.

South and Southeast Asia, in many ways, represent the most important region of the world right now. Not only do they sit at the confluence of superpower conflict, they also represent the best opportunity to lift billions more humans up to decent standards of living. For the U.S. to ignore the historic opportunity to help these countries get rich would be to do a disservice both to its own geopolitical interests and to all of humanity.

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