America 2020: Why Asean matters

The Southeast Asia regional grouping is vital to America’s trade and security. It’s time to take further steps to ensure this partnership no matter who is in the White House in 2021.

America 2020: Why Asean matters

As the United States enters its 2020 election cycle and prepares to vote for the next president, many observers of Southeast Asia wonder this: what impact will the election have on the direction of US policy toward Asia and specifically in Southeast Asia? Will American engagement continue to weaken in the wake of the downgraded American attendance at the 2019 East Asia Summit (EAS) in Bangkok last November? Will America re-engage in the face of significant competition from China and the European Union for the hearts, minds and pocketbooks of the Association of Southeast Asia Nations (Asean)?

Much has been made of the fact that President Donald J Trump did not attend the last two Asean summits in Singapore and Thailand. Showing up is critical, and it was a strategic misstep that Trump did not see this as a priority. In the long run, however, and especially as it relates to the next American administration, Asean will continue to play an important and central role in how America thinks about Asia.

A look at the long history between Southeast Asia and the United States suggests the relationship will continue and probably gain steam with a more competitive China flexing its muscles in its “backyard.” Whether President Trump wins a second term or a new president takes over on January 20, 2021, Asean will still have a critical place in US policy and engagement in Asia.

Asean matters to America through any lens – geopolitical, security, economic and commercial (especially the digital economy, energy and infrastructure) and, certainly, people-to-people relations. For the last decade, every US administration, both Republican and Democratic, has reaffirmed Asean’s centrality as core to American foreign policy in Asia. Since 2009, the American president has attended all but three Asean summits. This essay will examine the geopolitical, security, people-to-people and, I would argue most importantly, the economic aspects of America’s relationship with Southeast Asia.

Why is this the case?

The United States and Southeast Asia have been connected for centuries. The first recorded contact of an American in Southeast Asia occurred in Thailand in 1818, when an American merchant sailed into Bangkok to trade sugar and returned to the United States with a letter from the Thai Royal Court for President James Monroe. America’s first treaty with an Asian country was the Treaty of Amity and Commerce, signed in 1833 between Thailand and the United States during the reign of King Rama III and the presidency of Andrew Jackson.

With this early and firmly rooted economic relationship, Southeast Asia and the United States embarked on a journey that would result in “unbreakable bonds of shared history, culture, commerce and values,” as Patrick Shanahan, the acting US Secretary of Defense, wrote in June 2019. Our shared history took us through the horrors of the Second World War and the war in Vietnam. Asean itself came into being as war was being waged in Vietnam and in part as a reaction to the threat of the spread of communism in Indochina. In 2019, Indonesia and the United States celebrated 70 years of diplomatic relations, while in 2020, Vietnam and the United States will celebrate 25 years since formal diplomatic relations were established, which in itself is incredible when you remember that just 20 years prior to that the two countries were fighting one of the modern era’s deadliest wars.

In terms of both geopolitics and economics, Asean has been central to the evolution of Asia’s regional architectures, primarily by convening various high-level meetings including the East Asia Summit,
which brings together the 10 Asean countries, their “Plus Six” partners (China, Japan, South Korea, Australia, New Zealand and India) as well as the United States and Russia. While the Asia-Pacific Economic Cooperation summits bring together 21 Asian economies to discuss trade and economic issues, its membership currently does not include India. As such, the EAS is the only gathering that brings together the nations of the Indo-Pacific. Although the United States has seen the East Asia Summit as a venue to focus on geopolitical and security-related issues, the Asean leadership has viewed the EAS dialogue as a venue for security, economic and trade issues. Asean has played a leading role in the formation of Asia’s regional economic initiatives like the Chiang Mai Initiative, and trade frameworks such as the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP).

Asean’s rotating chair also means that during a 10-year cycle, the leaders of the Indo-Pacific meet in each of the Asean nations, allowing all Asean countries the opportunity to be showcased to the world in a way in which no other region is. The East Asia Summit, with Asean as its convener, is central to the development of Asia’s regional architecture, relations between the great powers and American engagement in the Indo-Pacific. The importance of Asean will not change, regardless of who sits in the White House in 2021.

The geopolitical relationship

Asean served as the fulcrum of the Obama administration’s “pivot” to Asia policy. In 2009, the United States acceded to the Treaty of Amity and Cooperation with Asean, leading to eight years of significant engagement as well as Asean’s invitation to the United States to join the East Asia Summit as a full participant in 2011. In 2010, the United States became the first non- Asean nation to appoint a full-time resident ambassador to Asean. In fact, President Obama himself visited all the Asean nations except Brunei during his presidency and attended all but one East Asia Summit during his eight years in office.

In 2012, the Obama administration institutionalized the Asean-US summit, which has occurred every year since. President Obama’s secretaries of state, Hillary Clinton and John Kerry, both attended every Asean Regional Forum, and his secretaries of defense similarly attended the Asean Defense Ministers-Plus meetings. The US trade representative also began to send its senior-most officials to the Asean economic ministers meetings.

In 2015, as the Asean community was formally launched, the United States and Asean elevated their relationship to a strategic partnership, which represented a formal recognition of the importance of the United States to Asean, as well as Asean to the US. It also represented another step in cementing relationships with Southeast Asia that had been in the works for centuries. The Asean-US Strategic Partnership and its Plan of Action (2016-20) clearly set out the vision for a long-term relationship between the two, built on a shared vision of a rules-based regional architecture. The East Asia Summit also emerged as the prevailing venue for Asia’s leaders to meet. Specially, the strategic partnership would be based around five priorities: economic integration; maritime cooperation; addressing transnational challenges; empowering emerging leaders; and supporting women’s opportunities. The joint statement announcing the strategic partnership stated a further commitment “to strengthening democracy, enhancing good governance and the rule of law.”

The year 2016 saw the first standalone Asean-US Leaders Summit, which included all 10 Asean heads of government as well as the secretary general of Asean, convened by President Obama over two days in Sunnylands, California. This meeting represented yet another step in the important evolution of the American relationship with Southeast Asia. The Sunnylands summit, held on February 15 and 16, 2016, was the very first time the leaders of Asean met after the formal establishment of the Asean Economic Community on December 31, 2015. It was also the first time the leaders met since Asean upgraded the relationship with the United States to a strategic partnership. The 17-clause Sunnylands Declaration set a platform from which the relationship would move forward founded on shared principles, values and aspirations.

These values have been encapsulated in the Trump administration’s Free and Open Indo-Pacific (FOIP) policy, including respect for sovereignty; peaceful resolution of disputes; free, fair and reciprocal trade; adherence to international rules; and norms including freedom of navigation and overflight. Similar to the previous administration under Obama, the Trump administration has placed Southeast Asia at the geographic center and geopolitical heart of its FOIP policy. In fact, FOIP was first publicly articulated in Asean by President Trump during the 2017 APEC Summit in Danang, Vietnam. After APEC, Trump traveled to Manila for the Asean and East Asia Summits.

President Trump’s secretaries of state, Rex Tillerson and Michael Pompeo, have attended every Asean Regional Forum, which gathers foreign ministers from the EAS countries along with other ministers from around Asia including North Korea. US secretaries of defense Jim Mattis and Mark Esper have continued attendance at the Asean Defense Ministers-Plus meeting. In fact, in just his first few weeks as secretary of defense, Esper visited Asean twice and made a priority of attending his first Asean Defense Ministers Meeting along with stops in Vietnam and the Philippines in November. While US Trade Representative Robert Lighthizer has yet to attend an Asean economic ministers meeting, he has sent his deputy, Ambassador Jeffrey Gerrish, to the Asean Economic Ministers meetings each year. Ambassador Lighthizer’s very first trip as US trade representative just days after he was sworn in was in fact to Vietnam for an APEC trade ministers meeting.

At the 2019 Asean-US summit, presidential envoy and US delegation head Robert O’Brien read a letter to Asean leaders from President Trump inviting them to attend the second Asean-US Leaders Summit in America in early 2020. Many see this invitation as an attempt by the Trump administration to make

up for lost time and to re-establish a leaders’ dialogue after a two-year hiatus. Regardless of why the invitation was extended, when this summit takes place it will represent another important step in the evolution and institutionalization of this important relationship, and a chance to assess the first five years of the US-Asean strategic relationship and plot a course for the future.

The security relationship

Asean matters for American security. Its central location provides access to ports in the Indian and Pacific oceans as well as the South China Sea. It is home to sea lanes that carry more than 33 percent of the world’s trade, according to the Center for Strategic and International Studies in Washington. The United States has treaty alliances with both Thailand and the Philippines. The Philippines and the United States have a strong militaryto- military relationship based on the 1951 Mutual Defense Treaty, as well as the 2014 Enhanced Defense Cooperation Agreement. Singapore and the United States also have a partnership on defense issues embedded in the 1990 Memorandum of Understanding (which was renewed by Prime Minister Lee Hsien Loong and President Trump in September 2019), the 2005 Strategic Framework Agreement and the 2015 Defense Cooperation Agreement.

As Randy Schriver, the US assistant secretary of defense for the Indo-Pacific, shared with us at the US-Asean Business Council’s 35th anniversary dinner in June 2019, the Indo-Pacific Command has four times the assigned forces of any other geographic command, where more than 370,000 American soldiers, sailors, airmen and Marines live, train and work alongside our allied and partner forces. This forward posture is for good reason as seven of the 10 largest standing armies in the world reside in the Indo-Pacific, with six countries possessing nuclear weapons.

Now in its 38th year, one of the largest and longest-running military exercises in the world, Cobra Gold, was co-hosted by the United States and Thailand with 27 other nations participating this past summer. Thailand, the Philippines and Singapore also participate in Cooperation Afloat Readiness and Training (Carat), Rim of the Pacific (Rimpac) and Southeast Asia Cooperation and Training (Seacat) exercises with the US military. Seacat also includes Brunei, Indonesia, Malaysia and Vietnam. Indonesia is a participant in the Carat, Rimpac and Cobra Gold exercises. In September 2019, the US Navy hosted in Thailand the first US-Asean Maritime Exercise to strengthen relationships, interoperability and information sharing between the navies of the Asean nations and the United States, which included military personnel from all 10 Asean countries.

The June 2019 US Department of Defense Indo-Pacific Strategy Report clearly outlines the US administration’s Free and Open Indo-Pacific policy from the security perspective, stating that the Indo- Pacific is now the DoD’s priority theater – not a priority theater but the priority theater. In an increasingly complex world, Asean centrality and cooperation is more important than ever to American security and our alliances, partnerships and military exercises certainly demonstrate this.

The people-to-people relationship

Asean is critical to the United States from a people-to-people perspective. Asean is collectively the third-largest population in the world with 650 million residents, according to Asean Matters, a joint publication by the East-West Center, the ISEAS–Yusof Ishak Institute in Singapore and the US-Asean Business Council.

In addition to its large population, Asean is home to one of the youngest populations in the world. Almost 60 percent of Asean’s population is under the age of 35. This equates to a youth population of more than 380 million people, a population that is 20 percent larger than the entire population of the United States. As I will touch on later from an economic perspective, this alone is one of the major reasons why Asean is important no matter who takes the oath of office on January 20, 2021.

The Young Southeast Asia Leaders Initiative, or YSEALI, is one Obama-era program that has seen continuity in the Trump administration. More than 140,000 young people aged 18-35 have joined the program, which offers regional workshops, professional and academic exchanges, as well as community-focused grants that help to advance and grow ties with the United States. President Obama hosted YSEALI fellows at the White House and in town halls during his visits to Asean. Vice President Mike Pence also met with YSEALI fellows during his first visit to Indonesia.

Almost 7.5 million people in the United States identify themselves as Asean- Americans. The Filipino and Vietnamese populations are the largest: 3.9 million Filipino-Americans and more than two million Vietnamese-Americans. Almost three million Asean-Americans reside in the state of California, the largest population of Asean identity in the United States. This significant population of Asean Americans is another reason why Asean matters for America, especially heading into an election year. According to the World Bank Bilateral Remittances Matrix for 2017, more than 55 percent of Vietnam’s remittances come from the United States, while 35 percent of the Philippines’ and 30 percent of Thailand’s come from Filipino and Thai-Americans, respectively.

The economic relationship

America’s economic relationship with Asean, riddled with opportunities and challenges, is the primary reason why the next American president must double down on Asean. At the 25th Anniversary Dinner of the US-Asean Business Council in 2009, the late Lee Kuan Yew, then-minister mentor of Singapore, recounted: “If the US does not realize that the Asia-Pacific is where the economic center of action will be, and loses the economic superiority or lead that it has in the Pacific, it will lose it worldwide.” Our economic relationship is not just a case of dollars and cents – it plays into the overall geopolitical and security of the Indo-Pacific and directly impacts the US economy, and through its impact on the

economy, it impacts politics in America. Ten years later, Randy Schriver, the assistant secretary of defense, said, “Acting Secretary Shanahan acknowledged the interdependence of security and economics and that prosperity is vital for all in the [Indo-Pacific] region.”

The importance of the economic relationship is clear for both Asean and the United States. America’s commercial relationship with Asean is broad and growing. The demographics of the region alone are compelling, making Asean one of the most economically appealing markets in the world. Asean contains the world’s third-largest population and third largest labor force. The Indo-Pacific, which is easily served from Asean, has more than 60 percent of the global population.

Of course, size alone is not a compelling factor for economic opportunity. Asean’s growth is also in its favor. Since the 1997 Asian financial crisis, Asean has seen steady economic growth of between 4 and 5 percent, and the International Monetary Fund projects that it will grow at an average annual rate of 5.5 percent per year through 2050, which would enable it to become the world’s fourth-largest economy behind China, India and the United States, and ahead of the European Union and Japan. This growth will help Asean’s middle class double from roughly 135 million people to more than 330 million people by 2030, according to the paper “The Emerging Middle Class in Developing Countries,” by Homi Kharas for the Organization for Economic Cooperation.

A look at the history of the US-Asean Business Council (US-ABC) tells part of the story. For more than 35 years, the US-ABC has been the premier advocacy organization for American corporations operating in Southeast Asia. Today, the US-ABC’s membership base is almost twice as large as it was 10 years ago. In the same time frame, the total goods and services trade volume between the United States and Asean has increased almost 30 percent. Currently, Asean is the fourth- largest export market in the world for American-made goods, as well as American agriculture. Only Canada, Mexico and, currently, China, are bigger destinations for American goods and agriculture products. Total US exports in goods and services to Asean totaled more than $105 billion in 2018. This export figure on a per capita basis is two times greater than China, and almost 10 times greater than India. Asean is not just important to America at the national level in Washington – all 50 US states export to Asean, with 26 of those states exporting more than $1 billion in goods to Southeast Asia. Exports to Asean directly support more than half a million American jobs.

The growth in US-ABC members is in part related to the increasing interest in Asean as an economic community and a market unto itself, but also for its trading relationships and its unique work force. Many during the past 10 years have looked to Asean to diversify from China, especially as labor and other costs of doing business have gradually increased. These patterns, while present during the past decade, have been accelerated by US-China trade frictions during the last 18-24 months.

Vietnam has been the biggest beneficiary during this period with companies from America, the European Union, China and other parts of Asia announcing new investments there. Vietnam’s trade numbers bear out the shifting supply chains. Trade with the United States has grown more than 31 percent in the first eight months of 2019 to $50.1 billion. Currently, Vietnam is America’s 13th largest trading partner.

However, Vietnam is not the only beneficiary of this more recent “China plus one” trend. Thailand has seen increased investment, and its trade with the United States rose more than 4 percent to $30.5 billion in the first eight months of 2019. Other nations including Indonesia, Malaysia and Singapore have seen an uptick in inward investment flows.

One of the reasons Vietnam has been a clear beneficiary in the last 18 months is because it has pursued a strategy of obtaining key market access through targeted free trade agreements. Before the United States pulled out of the Trans- Pacific Partnership (TPP) in 2017, Vietnam would have obtained market access to the United States, Japan, Canada and Mexico through the deal. Still, Vietnam has successfully executed the TPP agreement and EU-Vietnam Free Trade Agreement. These agreements have given exports from Vietnam preferential market access to Australia, Canada, Europe, Japan, Mexico and New Zealand, among others. The EU and TPP agreements came into effect for Vietnam in 2019. The only other Asean country to have ratified the TPP is Singapore, which generally does not compete with Vietnam for investment. Brunei and Malaysia have signed it but not ratified the agreement domestically. In addition, now that India has withdrawn from RCEP, the RCEP agreement will likely be finalized early in 2020, giving Vietnam improved access to China and South Korea, who are not part of the CPTPP Agreement.

Investment

American companies are investors, employers, ambassadors and partners in Asean. These investments in real estate, labor and capital are firmly rooted in decades of commitment that transcends day-to-day fluctuations or any one occupant of the Oval Office. Capital investments, for example, have built manufacturing plants to serve the markets of Asean and the Indo-Pacific. More than $329 billion in American foreign direct investment has been committed to Asean to date, making the grouping by far the number one destination for American FDI in Asia. In fact, FDI to date from US companies in Asean is more than American investment into China, India, Japan and Korea combined, according to data from the Bureau of Economic Analysis at the US Department of Commerce.

American investment not only employs millions of workers in Southeast Asia, but countless others who have found livelihoods in supplying and servicing these investments. The corporate social responsibility projects of these companies have improved lives across the region in areas including health care, education and youth and women’s empowerment. These investments and the relationships built on them ensure that American business is committed to Asean and will strongly encourage America’s leaders to continue their support for this important region.

Both the Obama administration, through US-Asean Connect, and the Trump administration, through the FOIP strategy, concentrated their economic initiatives toward Asean primarily in three commercially significant areas for US business in Asean: the digital economy, energy and infrastructure. USAsean Connect focused on water security infrastructure, while the FOIP is broadening the engagement around infrastructure. The Trump administration is also focusing its energy engagement on supporting the exports of American liquefied natural gas.

Digital Asean

Asean’s young and tech-savvy population represents enormous potential for companies powering the digital economy. The rate of mobile internet adoption in Asean, according to the e-Conomy SEA 2019 study released by Google, Temasek and Bain & Company, is the fastest in the world. Approximately 150 million users are projected to join the “mobile age” during the next 15 years, which on average will add 10 million netizens each year from a base of 360 million internet users in 2019.

According to the e-Conomy study, “Asean’s internet economy hit $100 billion in value in 2019, tripling its size over the last four years.” The same study predicts that the internet economy will reach $300 billion by 2025. Increasingly, the region’s talent and innovation is attracting global attention. Regional startups attracted nearly $8 billion in capital investments in 2017, up 220 percent from 2016. In 2018, Asean attracted $12 billion in venture capital investment and is on pace to reach a similar amount in 2019. Today, Asean boasts nearly a dozen homegrown “unicorn” startups and even a “decacorn.” In 2019, Singapore’s digital economy was named second-most competitive in the world, second only the United States, according to the Swiss Business School IMD’s World Digital Competitiveness Ranking.

If you believe the future is digital and increasingly mobile, then Asean matters for America, especially the globally competitive technology industry.

Energy

As one of the world’s largest and fastestgrowing regional economies, Asean is also becoming a major area of focus in the global energy economy. According to the International Energy Agency, the energy demand growth rate in Asean is double the global average. While coal is still the dominant source of the region’s energy mix, Asean is also at the forefront in diversifying its fuel sources and technologies in terms of oil, gas, hydro and other renewables such a solar, biogas and wind. To keep pace with demand growth, the agency estimates Asean’s energy imports are expected to grow significantly during the next 20 years ($300billion annually), creating a significant commercial market opportunity for US energy exports.

The other key trend in Asean’s energy sector is the need to increase power generation and transmission capacity to keep pace with both rapidly growing consumer (growing middle class) and
industrial (growing manufacturing sector) demand. These trends are creating significant new commercial investment opportunities in the power generation and transmission sectors. According to the Stimson Center, by 2040 Asean’s energy demand will require massive investment in energy generation and transmission in order to double installed capacity from 240 gigawatts to 565 gigawatts.

This energy outlook for Asean from a commercial perspective is why the US Agency for International Development’s Asia Edge initiative is one of the economic pillars of the FOIP strategy. Launched in 2018, Asia Edge is viewed as a government initiative to help grow private sector-led sustainable and secure energy markets in Asia. The agency describes the goal of Asia Edge as “helping Asian partner countries leapfrog over decades-old infrastructure and modernize their energy sectors by investing in smart grids, efficient technologies and mobile apps for electricity payments. These projects will require high-tech solutions, the kind that US companies are uniquely placed to provide.”

Asia Edge’s individual projects, such as the US-Asia Gas Partnership and Clean Power Asia, and other partnership initiatives such as the Japan-US Strategic Energy Partnership, will improve energy industry ecosystems for businesses by promoting regional energy integration and trading markets; markets for advanced energy systems; modernization of electrical utilities (smart grids); and better government energy procurement processes.

Many governments in Asean are looking especially to potentially lower-cost liquefied natural gas from the United States as a result of the shale gas revolution to power their economies. US-Asean business members including oil and gas majors as well as natural gas specialty infrastructure firms are stepping up to meet this demand, often through long-term supply contracts, which represent another relationship that binds Asean and the United States beyond any particular American administration.

Infrastructure

Another key pillar of the US government’s FOIP strategy, which also aligns with both Asean’s growth needs and the commercial interests of the US private sector, is in the area of infrastructure. Asean’s strong economic growth, population size, high rates of urbanization and growing regional connectivity require significant financial investments in infrastructure development and represent significant commercial opportunities. The Asian Development Bank estimates that from 2016 to 2030, Asean will need $3 trillion in infrastructure development spending. Many analysts note that Asean’s annual public spending on infrastructure is about half of the above investment requirement, creating a significant infrastructure financing gap.

Commercial competition in Asean between Asean, American, Chinese, Japanese, South Korean and European firms for infrastructure project opportunities is fierce. Winning projects is often tied to firms that can offer end-to-end project solutions, including low-cost financing and competitively priced products and services. A number of American companies are world-class players in infrastructurerelated areas such as power, aviation, roads and engineering. While American firms can compete effectively anywhere in the world on quality, technology and project life cycle costs, financing offered by foreign governments can give other firms a competitive edge.

Looking ahead, the US government’s efforts to enhance the competitiveness of American firms in infrastructure are poised to improve with the launch of the Development Finance Corporation (DFC). This new American international development finance agency, which brings together several previous independent agencies under one umbrella, was a key feature of the Build Act legislation that was signed into law in October 2018. In addition to creating the DFC, which will be able to make equity investments into projects, the Build Act also provides the DFC with up to $60 billion in investment
resources. When combined with increased forms of private sector collaboration with other US government agencies such as the Trade Development Agency and the Millennium Challenge Corporation under the broader FOIP strategy, the commercial competitiveness of American firms in Asean’s infrastructure space will be enhanced in 2020 and 2021.

Conclusion

As we have shown throughout this essay, Asean and America have strong bonds and a multidimensional relationship. Whoever wins the American presidency in 2020 will have a compelling set of reasons to ensure that the upward trajectory of the relationship between Asean and the United States continues into the next decade.

However, the next occupant of the Oval Office cannot simply sit back and let the relationship tread water. The United States must continue to actively support Asean centrality. And supporting Asean
centrality means showing up consistently at all levels, especially at the leadership levels. The American president, despite the long journey to get to the Asean summit each year, simply must be at the table with the other leaders of the Indo-Pacific. If we are truly a Pacific nation, as decades of Republican and Democratic presidents including Trump and Obama have said, then ensuring our seat at the table at the East Asia Summit is the starting place.

Asean, for all the reasons discussed above, will have multiple suitors, including its “Plus Six” partners in Asia, the Europeans and even the Canadians and Mexicans. Recalling Lee Kuan Yew’s remarks on America’s place in the Pacific and the central role that trade and economics play in the region, the next US administration must address the trade landscape and pursue bilateral or multilateral trade agreements with Asean, which will help level the playing field and open market access in Asean for American goods, services and investments. The Trump administration made a bold move to remove the United States from the TPP agreement, but has yet to provide a vision of how to take trade forward toward the president’s vision of a free and fair Southeast Asia. Meanwhile, the TPP, RCEP and bilateral agreement with the European Union have opened or will open markets for competitors of the American business community. Unless the next administration prioritizes these relationships in Asean, we are destined to find that we will become less relevant in other areas of our multidimensional relationship with this crucial grouping.

This essay was written with the support of Marc Mealy, the council’s senior vice president for policy, and Monica Chritton, the council’s associate for communications, marketing and public affairs.



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Alexander Feldman is president and chief executive officer of the US-Asean Business Council.

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