Trade

The effects of COVID-19 on Southeast Asia’s health, economies, and political systems will not be the only stories to watch in the region in 2021, although they will surely be among the most important. But the region also will be impacted by shifting geopolitical and trade tensions and the effects of superpower rivalry. 4. U.S.-China Tensions and Their Impact in Southeast Asia Although the incoming U.S. presidential administration may shift some aspects of the U.S.-China relationship, it is unlikely to alter the overall trajectory of U.S.-China ties, which continues to evolve into outright competition in many spheres. The Biden administration will, however, probably want to bolster relations with Southeast Asia to create a broader coalition to push back against some of Beijing’s actions. While shifting the nature of the relationship with China, the Trump White House simultaneously alienated several important partners in Southeast Asia, which made it even harder to build any regional bulwark against Beijing. The new White House likely will make efforts rhetorically to reset ties with Indonesia, Thailand, and other Southeast Asian states, possibly reduce trade tensions with these states in order to reset ties, and try to restore the United States’ role in multilateral trade integration, although this may be impossible to do given the U.S. political environment. It also may bolster the U.S. focus on regional cooperation related to COVID-19 and climate change, two issues of central importance to Southeast Asian states, which are on the frontlines of climate change in particular. And China’s image in the region has indeed suffered significantly during the COVID-19 pandemic, as it has in some other parts of the world, in part due to regional concerns about Beijing’s more nationalistic and belligerent regional diplomacy despite the pandemic. Yet even with its image suffering, Beijing retains significant pull in Southeast Asia. China will remain the region’s most important trading partner, and its trade relationship will only grow in the coming years; given the shifting nature of U.S. domestic politics, there is little likelihood that in a new administration the United States will participate in Asian trade integration. China’s economy continues to perform well, even as most of the world struggles due to COVID-19, and this economic strength puts Beijing in a powerful position regionally and even in its bilateral trade relationship with the United States. China also likely will provide a significant amount of vaccines to Southeast Asian states, especially poorer countries in mainland Southeast Asia, giving it further leverage. With other powerful blocs like the European Union recently agreeing to trade or investment deals with China, and with Southeast Asian states (and several other Asian countries) pushing through the Regional Comprehensive Economic Partnership (RCEP), Southeast Asian states will be even harder for a new U.S. administration to convince that they should work with Washington to make any trade demands of Beijing. Indeed, there is little reason to expect most of them to push back against China’s increasingly assertive diplomacy, crackdown on rights at home, or export of its developmental model.

The past year was a highly eventful one in Southeast Asia. The region suffered significantly from the global pandemic, and yet it also contained some of the states with the best records on COVID-19 in the world, including Vietnam and Thailand. Many Southeast Asian countries, even those that have handled the pandemic effectively, face vast economic distress this year, and the region also faces continued democratic backsliding and major geopolitical and strategic challenges. Here is the first tranche of some events to watch in Southeast Asia in 2021. Vaccinating Populations While Thailand, Vietnam, Singapore, Brunei, and several other Southeast Asian states have had exemplary records in containing COVID-19, especially given that Vietnam and Thailand are not wealthy countries, the region now needs to obtain and vaccinate people to wholly stop the pandemic. Unfortunately, many of the leading vaccine makers have reserved hundreds of millions of initial doses for wealthy countries, and several Southeast Asian states do not seem to have clear plans in place for vaccination. Not surprisingly, Singapore already has begun vaccinations, and seems to have a clear plan in place. Indonesia also has several deals for vaccines, including those from China, but the safety of the Chinese-made vaccines still remains unclear. Other countries like Thailand, Malaysia, and the Philippines do have strategies in place, but they may be stuck waiting for vaccines as European and North American states get more of the first shipments, and still other Southeast Asian states do not have a clear vaccination plan in place. Much of the region may remain unvaccinated even late in 2021. The Economic Impact   Even Thailand and Vietnam and Singapore, which have handled COVID-19 impressively, suffered major economic hits this year, though their ability to control the pandemic will bolster their economic recovery, making them relatively attractive to foreign investment. (Bloomberg recently ranked Thailand as one the strongest emerging markets economically in 2021, although I have my doubts given Thailand’s dependence on tourism, political instability, and other major challenges.) Singapore, a highly trade-dependent and tourism-dependent economy, is expected to see its economy shrink by at least 6 percent when the final figures for 2020 are calculated, while Thailand also has suffered a severe contraction. The Philippines, meanwhile, with one of the toughest lockdowns in the world, has weathered a horrendous economic contraction, probably of around 8.5 to 9.5 percent—its worst economic performance in decades, which has fallen particularly hard in a country with high rates of poverty and inequality.   While it is possible that some Southeast Asian states will rebound strongly in 2021, the reality for many seems grimmer. Without effective vaccination strategies, many Southeast Asian states will continue to struggle. Tourism, so important to economies like Thailand, is unlikely to rebound quickly until travelers feel much more confident about safety. The region has continued to push through multilateral trade liberalization, most recently with the signing of the Regional Comprehensive Economic Partnership, but it will be of little help if most countries do not get people vaccinated, consumer spending remains depressed, infrastructure building remains in limbo, and most tourists are still scared to cross borders.  COVID-19’s Impact on Democracy   Like many other regions of the world, Southeast Asia saw that the pandemic allowed illiberal leaders to entrench their gains. In a CFR Discussion Paper released in November, I documented some of the ways in which COVID-19 had facilitated more democratic backsliding in Southeast Asia, including in the Philippines, Malaysia, Thailand, Cambodia, and Indonesia, among others. Southeast Asia was hardly alone; Freedom House released a study of the pandemic’s effect on democracy, and showed that democracy had weakened during the pandemic in eighty countries. (I contributed slightly to some of the Southeast Asia research for that report.) Will the region’s illiberal leaders consolidate the further gains they made in 2020? It is likely, although not assured in some places like Thailand.   For Thailand in particular, the kingdom’s domestic struggles—partly due to new restrictions enacted after COVID-19 and partly due to pent-up anger at the monarchy and the military—seem poised for a bleak outcome, with the return of the lèse-majesté law in force and the potential for a substantial crackdown if protests continue into the new year.

"As our Nation and the world continue to respond to COVID-19, we should look ahead to how we will create a safer and more equitable economic recovery for workers in the United States and around the world...It should be a priority of the United States government to advance the rights of women around the world. To that end, our trade laws should be modernized."

The United Kingdom and the European Union have been unable to reach a deal to define their post-Brexit relationship after nearly a year of talks. A severe disruption to trade between them looks increasingly likely.

Supply chains will need to be rethought for a post-pandemic world, with more emphasis on diversification, domestic production, and stockpiling.

The recently announced EU proposal is a welcome development that recognizes the economic dimensions of great power competition.

Should U.S. companies be held responsible for child slavery on West African farms where cocoa beans are harvested? The top U.S. court’s decision could have major consequences for chocolate companies and global supply chains.

Asia forms RCEP trade bloc; U.S. military buys location data originating from apps; Huawei to sell honor business; CISA Director Chris Krebs fired; and Canada calls out China, Russia, Iran and North Korea.

Over the weekend, 15 Asian states, including China, signed the Regional Comprehensive Economic Partnership. The deal provides a major signal to investors that the region is still committed to multilateral trade integration.