ASEAN’s Indo-Pacific vision in troubled waters

The July 2024 East Asia Summit’s statement reinforces ASEAN’s vision to implement the ASEAN Outlook on the Indo-Pacific (AOIP). But the AOIP faces significant challenges from two major trends that could alter its relevance in the region — the proliferation of minilateral defence arrangements and economic fragmentation.

The AOIP advocates for ASEAN’s pivotal role in regional cooperation and decision making. Launched in 2019, it underscores the necessity of ASEAN-led mechanisms, such as the East Asia Summit, and the importance of an inclusive regional architecture. Its central message is clear, emphasising ASEAN’s strategic role in shaping the Indo-Pacific region into a zone of dialogue and cooperation, not rivalry.

The plethora of minilateral defence arrangements contradicts AOIP’s vision of an inclusive regional architecture, as they primarily target China. One example is AUKUS, a trilateral defence partnership formed in 2021 between Australia, the United Kingdom and the United States. Another example involves Japan, South Korea and the United States. They worked to establish the Trilateral Security Cooperation Framework, institutionalising their defence cooperation to pursue peace and stability in the Korean Peninsula and across the broader Indo-Pacific.

The escalating tension between China and the Philippines over their overlapping maritime claims in the South China Sea pushed Manila closer to actors from outside Southeast Asia. As a result, several minilateral defence arrangements have sprouted up, including Japan–Philippines–United States and Australia–Japan–Philippines–United States. Across the broader Indo-Pacific region, NATO seeks to strengthen cooperation with Australia, Japan, South Korea and New Zealand.

These minilateral defence arrangements have several negative ramifications. They can undermine ASEAN’s plan to play a central role in regional security architecture. An isolated China is also not AOIP’s objective. Beijing already sees itself as being isolated from the regional security architecture, and called for ASEAN to reject NATO’s move to play a role in Southeast Asia.

Geopolitical tensions and concomitant economic and strategic competition drive economic fragmentation. Growing mistrust and national security concerns reshape trade and investment flow. As a result, protectionist measures like tariff hikes are becoming more common. For example, the International Monetary Fund reported a surge in new trade restrictions, from fewer than 500 in 2019 to nearly 3000 in 2023.

The United States and China are in a trade war, particularly over Chinese electric vehicles. Washington’s recent imposition of tariffs on Chinese goods and the recent return of domestic industrial policies — governments’ efforts to support certain industries or economic sectors — underscore the persistence of protectionist policies, suggesting that economic fragmentation is here to stay. The trade war between the United States and China means that states and sub-regions dependent on Chinese industrial inputs may need to find alternative markets or source non-Chinese intermediate inputs.

But some Southeast Asian states benefit from those disruptions by positioning themselves as an alternative to Chinese manufacturing and exports. This is the case for Vietnam, where foreign direct investment (FDI), including in the electronics and energy sectors, has soared to US$36.6 billion, up by 32.1 per cent year-on-year. Likewise, Indonesia has seen strong FDI growth in recent years, particularly due to mining and investments in its nickel processing industry. In 2023, it recorded a total of US$47.3 billion in FDI, an increase of 13.7 per cent year-on-year.

However long-term disruptions in international trade could include reduced foreign investment, restrictions in migration patterns, supply chain upheaval and limited technology sharing, with developing countries suffering the most. Estimates suggest additional global trade restrictions could lead to a 7 per cent economic decline, equal to US$7.4 trillion.

For ASEAN, the consequences of economic fragmentation are likely to be severe. Reduced trade efficiency and higher costs will hurt consumers and businesses. Higher tariffs and non-tariff barriers hurt international trade. As these barriers increase, the growth rate of international trade in the five year period from 2020–24 is the lowest it has been since the 1990s. ASEAN member states rely on export-oriented strategies and trade to propel their growth. Economic fragmentation, through the broadening of tariffs and non-tariff trade barriers, as well as supply chain disruptions, could threaten ASEAN’s growth strategy and an inclusive regional architecture.

The proliferation of minilateral defence arrangements undercuts ASEAN’s role and mechanisms in shaping Southeast Asia’s regional security architecture, much less Indo-Pacific ones. Economic fragmentation further undermines economic cooperation and free trade, which drive ASEAN’s economic growth. Given the current United States–China rivalry across the military and economic fields, these two trends will continue for the foreseeable future. AOIP’s vision of ASEAN centrality and an inclusive region will likely remain an imagined illusion.