Meaningful template
For the global economy, uncertainty will still be prominent in 2024. The Russia-Ukraine crisis, the unprecedented humanitarian crisis in Gaza, the Houthi-led attacks in the Red Sea, and the United States’ strategic competition with China have all taken a toll on global supply chains.
Countries can no longer easily trade with and invest in each other as they used to do. Security has resurfaced as the primary consideration, above efficiency and the spirit to cooperate. Countries now filter interactions based on like-mindedness, potentially leading to a decoupling of the global economy. While there is nothing wrong with diversification per se, unhealthy suspicions should never drive the agenda in the very first place.
The trading partners diversification index of the United Nations Conference on Trade and Development dropped from 102 in 2022 to 95 in 2023, showing a more concentrated approach to trade.
Foreign direct investment patterns have also changed, with investments based on shorter geopolitical distance increasing from 38 percent in 2010 to around 50 percent in 2021, implying a new trend in trade and investment that defied the conventional gravitational model focused more on economic size and geographical distance, showing increased weight is being given to geopolitical factors.
As a home for emerging economies and leading manufacturers of global products, the Asia-Pacific region is not immune to these trends. On the one hand, the shortterm impacts may benefit some regional countries as they welcome more investment from the supply chain relocation of multinational companies.
On the other hand, the long-term consequences do not look promising. The misuse of entity of concern provisions and environmental standards to deny market access could worsen as major powers diverge. Moreover, there is no sign that the fragmented globalization and inward-looking policies will reverse considering the possible election outcomes in major democracies.
It is undeniable that China’s rise as a global economic powerhouse has provided members of the Association of Southeast Asian Nations with modalities to navigate the geopolitical currents.
China has introduced technology to process raw materials into intermediary products and expanded access to finance major strategic projects.
Thanks to China, ASEAN members have more experience to elevate their participation in the global value chain. Unfortunately, these modalities are not sufficient if ASEAN countries continue to be weak in backward linkage with much reliance on assembly and natural resources. Even more so if compliance with international labor and environmental standards is lacking and domestic economic reforms are sluggish. In short, China and ASEAN can do more to upgrade their value chains.
Leveraging the Regional Comprehensive Economic Partnership is one way to do it. The RCEP offers a safe space for ASEAN, China, Japan, the Republic of Korea, Australia, and New Zealand to resist the geopolitical pressures and deepen their economic integration.
The RCEP principles of openness and inclusiveness are anchored in the ASEAN approach to regionalism, enabling state parties to benefit from the removal of trade barriers and potential technical assistance.
Indonesia has implemented zero tariff on 65.1 percent of products originating in China, and China also has implemented zero tariffs on 67.9 percent of products originating in Indonesia.
Affirmative provisions and a package of support have been made available under the RCEP to the least developed parties, enabling them to be equally capable for offsetting geopolitical impacts using the region’s inner strength.