Asia’s Future Beyond U.S.-China Competition

Beijing and Washington are competing to set Asia’s rules, norms, and standards. But other countries in the region are increasingly choosing to shape its future themselves.

9 September 2020 -- Asia is changing dramatically, but the region’s two most significant powers are losing the plot. China and the United States are racing to the bottom—refracting issues from trade rules to data access and transfers to the development of a coronavirus vaccine through the prism of their own geopolitical competition. The pandemic has only deepened this dynamic, as the two countries hurl insults at each other and trade charges of culpability.

But other countries in the region increasingly view China, the United States, or both of them as the spoilers of meaningful collective action. And they are stepping into the breach by coordinating and cooperating.

This means that Asia’s future will not be defined by the Sinocentrism that Washington fears or by the American containment that Beijing seeks to forestall. Instead, what may prevail will be fragmentation, shifting coalitions, and a discombobulated patchwork of rules, norms, and standards.

Ironically, for all their ideological and strategic differences, Beijing and Washington are approaching the region in similar ways. Each is encouraging other Asian countries to accept its preferred institutions, norms, standards, and rules. And each is coercing others to forestall closer security or economic integration with its rival.

The United States has punished Asian companies whose sales improved China’s technology base—for example, when it imposed high-tech export controls on Taiwanese chipmaker TSMC to halt sales to a subsidiary of China’s telecom leader, Huawei. For its part, China punished South Korean firms after Washington convinced leaders in Seoul to deploy a U.S. Terminal High-Altitude Area Defense (THAAD) missile system, which Beijing detests. China has also implemented a de facto boycott of Australian products, because Canberra echoed Washington’s call to investigate the origins of the coronavirus, and has forced multinational firms to toe Beijing’s line on Hong Kong while the United States urged resistance.

And yet the rest of Asia may be unwilling to be trapped in a box of either Chinese or American making.

It is no easy feat to resist Chinese or American pressure, and both sides have powerful cards to play—China by further restricting access to its market and deploying coercive economic tools, and the United States by leveraging access to its banking system and use of the dollar for commercial transactions. But that is precisely what has been happening in recent years. To set trade rules, for example, eleven countries completed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) with neither the United States nor China as a party to the agreement. And this could become a model in other areas as Asia’s capable, sizeable, and self-interested players increasingly step up in fluid, issue-based coalitions.

During the Cold War, form drove function as Washington and Moscow forged exclusionary blocs. By contrast, function could drive form in tomorrow’s Asia, as the region’s countries tack back and forth between Beijing and Washington, set their own agendas, and reach agreements themselves.

Efforts by Beijing and Washington to define a zero-sum future for the region have thus far failed. Both overestimate their own leverage and misunderstand the depth of changes since the 1997–1998 Asian financial crisis that have given countries in the region greater capacity and will to shape their own futures.

Players like India, Indonesia, Japan, Singapore, and South Korea have earned the right to influence their region’s future. Nearly every government in Asia deeply mistrusts Beijing. Yet none of them, even those most ambivalent about Chinese power, have embraced a U.S.-dictated future.

In fact, pacts and institutions that exclude the United States have proliferated in Asia over the past two decades, despite American efforts to stop them. Just take Beijing’s successful 2013 initiative to establish the new Asian Infrastructure Investment Bank (AIIB). The United States not only opposed the AIIB but actively sought to disrupt it, trashing the new bank and pressuring allies not to join, though most ultimately did. And it has made a similar strategic mistake in its wholesale opposition to China’s Belt and Road Initiative (BRI). Instead of supporting higher standards and helping countries to extract more favorable loan terms from Beijing, Washington pressed countries, usually unsuccessfully, to reject Chinese money entirely.

Yet Washington has taken the wrong lesson from such debacles. Even today, it ascribes efforts to build a pan-Asian economic and institutional order largely to Chinese ambition. And it blames Asian “weakness” in the face of Beijing’s pressure for the fact that these institutions and initiatives have cohered. However, contemporary Asian regionalism—the desire to forge some cohesion out of the region’s enormous diversity—has deep historical roots and many non-Chinese champions.

Japan, for example, has long been the hinge of U.S. presence and strategy in Asia. It hosts U.S. military forces, shares Washington’s skepticism of China, and is a treaty ally. But while many argue that the two countries should lead a regional response to China’s supposedly “new” pan-Asianism, it was Tokyo that once incubated proposals for pan-Asian economic integration that Washington now ascribes almost exclusively to Beijing. Against vehement U.S. opposition, Japanese officials proposed in 1997 the establishment of an Asian Monetary Fund, an idea that was abandoned under U.S. pressure but that helped give rise to subsequent Asia-only currency swaps and Asia-only trade deals. And Japan is not alone: in 1990, Mahathir Mohamad, then Malaysia’s prime minister, proposed a dead-on-arrival East Asian Economic Group.

A slate of more recent proposals rely on the region’s principal multilateral entity, the ten-member Association of Southeast Asian Nations. These proposals include the Regional Comprehensive Economic Partnership, a pan-Asian trade deal that Washington once viewed as the principal competitor to the CPTPP. If it goes forward, with Washington having withdrawn from the CPTPP, Asia’s trade rules and standards will be governed by two agreements that exclude the United States and India—one of which also excludes China. And if Asia’s future economic rules are set largely by the region’s other players, the United States’ “free and open Indo-Pacific” strategy could be a hollow shell. Bluntly put, even if it is not dominated by Beijing, a more “Asian” Asia is not in Washington’s strategic and commercial interest.

Yet pressure from the United States to counter pan-Asianism is simply no longer as effective. Relative to the rest of the world, the U.S. economy is smaller than it was before the 2008 global financial crisis and much more so than during 1997–1998 Asian financial crisis.

Those crises bookended a tumultuous decade of debate about Asia’s reliance on Western markets and capital. But those economies are no longer disproportionate demand drivers for the region’s exports, and Asian sovereign and private funds increasingly provide capital to one another.

In a growing number of sectors, Asian economies are major consumers, including of U.S. corn, natural gas, pork, and soybeans.

Moreover, Asia has become a source, not just a recipient, of capital. China has extended its foreign policy through capital-exporting projects like the BRI that Washington detests. Money from Japan, South Korea, and other Asian economies is scouring the region for yield and financing opportunities.

Meanwhile, Asia’s emerging powers, including India, seem less content than ever to inhabit an architecture built largely by the West. This explains in part why India, despite its deep suspicion of Chinese power, joined both the AIIB and the Chinese-backed New Development Bank as a founding member.

Amid these sweeping changes, it is no surprise that few Asian governments appear willing to choose sides at the behest of the United States. But China is making a strategic miscalculation too. Beijing has cajoled and threatened its neighbors to forestall deepened cooperation with Washington, but its efforts have heightened fears of Chinese coercion and produced few tangible results. For instance, when Beijing punished South Korea for considering the THAAD system, Seoul went ahead with the deployment of one battery to Seongju, though it subsequently agreed not to deploy others.

Washington faces the most acute challenges because hopes are high in Asia that it will modulate some of its blunter approaches. Yet attitudes about China have hardened across the U.S. political spectrum, as even Democrats who detest President Donald Trump embrace many elements of his China policies. This stark bipolar framing traces back to former president Barack Obama’s warning about the region during Trans-Pacific Partnership talks in 2015: “If we don’t write the rules, China will.”

The coronavirus will only entrench the challenge, since the worst public health and economic crisis in generations has failed to yield an iota of constructive cooperation between Beijing and Washington. If a crisis of this magnitude cannot bring the United States and China together, Asia’s players may seek to define their own new terms of engagement. One example is data governance, as competing standards are already emerging in capitals from Tokyo to New Delhi.

This could lead to coordinated efforts in areas from public health to data access and transfers that are driven by a diverse set of countries. As with the CPTPP, this coordination could in turn leave out Beijing, Washington, or both if they threaten to become spoilers of meaningful action. It could ultimately be these other Asian players that write the rules of their region’s future.