How Asean can ease the birth pains of the multipolar world

 

Power shift: Asean has a big opportunity this week to help usher in the new world order. — Bernama

ON April 2, US President Donald Trump smashed the World Trade Organisation’s system of multilateral trade by announcing the imposition of tariffs, starting at midnight on April 9, on imports from “cheater” countries that were engaging in unfair trade practice. To Trump, a cheater is one that exports more goods to the United States than it imports.

This is nonsensical reasoning. A bilateral trade deficit is not evidence of being “cheated” because the payment to my barber does not mean that I have been cheated and my salary does not imply that my employer has been bamboozled. This nonsense shows that the tariff war is only marginally related to unfair trade practices. The two key reasons for the tariffs are to increase wages by bringing manufacturing jobs back to America and to cement US primacy in the global order with a show of force.

Tragically, the tariffs will neither revive manufacturing nor preserve US primacy. Tariffs will temporarily expand employment in a few sunset industries, but wages will remain stagnant because productivity growth potential in those sectors is nonexistent.

The immediate response to Trump’s show of force were precipitous collapses in the prices of US stocks and bonds, and the value of the US dollar. Investors recognised that this Great Wall of Tariffs had isolated the US economy, inevitably impoverishing it. Hence, 13 hours after the tariffs came into force, Trump suspended them for every trading partner except China. This climbdown made clear that the real target is China, which the US perceives to be an unfriendly power (eg, being friendly to Iran) that is engaging in unfair trading practices (eg piracy of US technologies).

The economist Adam Smith had anticipated this kind of clash in 1776. He observed that the three centuries of globalisation that began with the discovery of the Americas in 1492 and the discovery of the sea route from Europe to India in 1498 had overwhelmingly benefited Europe because its much greater military might enabled it to pillage instead of trade.

Smith, however, foresaw a reversal: the diffusion of technology through trade would eventually narrow the gap between the two groups. The economic rise of Japan, South Korea, China, and India is ushering in today’s messy transition from a unipolar to a multipolar order.

Asean should be guided by two understandings in navigating this transition.

The first is that the current US-China confrontation stems from their shared recognition that the prevention of war would require an eventual agreement on their respective spheres of influence. We are witnessing a defensive race between them to expand their spheres of influence, which is why the US has asserted its rights over Canada, Greenland, Panama, and Gaza; and China’s nine-dash line in the South China Sea has brought its maritime border to the doorstep of several Asean nations.

States that lock themselves into Washington’s orbit will be under strong pressure to decouple from Chinese technology and to shrink commercial ties with the world’s largest trader – sacrificing not only today’s access to the Chinese market (prospectively, tomorrow’s access to India) and compromising their sovereignty.

The second understanding is that this transition has created systemic dangers that require institutional responses. These new dangers include the Thucydides Trap which is the risk of war between rising and established powers; the Kindleberger Trap where inadequate international cooperation leads to ineffective handling of global disasters like climate change; and the Tragedy of the Commons which identifies the coming collapse of the food chain.

The Cold War 2.0 is causing growing collateral damage to Asean. A viable alternative to membership by Asean states in one of the spheres of influence is for Asean to cooperate with other middle power countries to form a nonpartisan club that functions as a buffer zone between the spheres of influence.

It is crucial for this club to achieve critical mass quickly – being big enough in population and GDP to earn begrudging acceptance by Washington, Beijing, and Moscow for its right to remain a neutral force. To achieve critical mass quickly, the founding group of countries must be kept to a manageable number to ease negotiations.

Asean must avoid instinctively shaping a Global South response like convening a new Bandung Conference (which brought together 29 newly independent Asian and African countries in 1955). The goal is not to accentuate class warfare at the international level but to maintain economic globalisation, world peace, and environmental sustainability.

To achieve critical mass quickly, this club must also bridge the Global South and the Global North. After establishing deep cooperation among Asean, Japan and South Korea (thereby setting the tone of North-South cooperation), this Asian grouping should propose to the European Union and United Kingdom the formation of the Atlantic-Pacific Sustainability Partnership (APSP).

The APSP would serve three core functions: (a) defend economic globalisation with a free trade area based on open regionalism; (b) defend global peace and environmental sustainability with a sustainability caucus to reduce tensions among major powers and coordinate actions on common challenges like pandemics; and (c) defend mutual aid with a development assistance agency guided by the 17 United Nation’s Sustainable Development Goals (SDGs) to counterbalance the use of development aid by major powers as a means of political influence.

Given the accelerated growth of Asean under this new system, the economic weight of the APSP would be more than twice that of China or the US by 2045, making it necessary for US and China to join the APSP to avoid defeat through self-marginalisation.

When this happens, the APSP would have crowded out Cold War 2.0 with cooperative multilateralism.- by  Prof Datuk Dr Woo Wing Thye

Renowned economist Prof Datuk Dr Woo Wing Thye is a visiting professor at Universiti Malaya and research professor at Sunway University. He is also Professor Emeritus of Economics at the University of California, Davis; University Chair Professor at Liaoning University; and Distinguished Fellow at the Penang Institute. 

The views expressed here are solely the writer’s own.

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Appreciating Asean

 

Regional togetherness: Asean’s first summits were irregular and distantly spaced. Now two summits are held regularly every year. — Bernama

Asean is a realities-grounded institution with certain strengths, which are hidden only to those who fail to appreciate them.

AS regional summits go, Asean’s has been growing by leaps and bounds. Not that this positive attribute is universally acknowledged, as is typical with Asean attributes.

Asean’s first summits were irregular and distantly spaced, and at one point even 12 years apart. Now two summits are held regularly every year, either together or spaced apart by months, with related Asean-led meetings in series.

Between summits, several hundred meetings of Asean officials are held each year to implement, oversee, and calibrate policies. The numerous meetings have prompted a misperception that Asean is merely a talkshop. 

Asean’s irregular summits proved that Asean leaders meet only when needed, as circumstances require, and not for the sake of meeting. Asean has never prioritised form over function, or ceremony over substance.

Asean is popular and successful for the common familiarity and shared comfort level leaders feel when they meet. These come only with frequent meetings forming a seamless web of mutual and reciprocal goodwill.

Critics cite the failure of the 2012 Asean Foreign Ministers’ meeting in Cambodia to issue a joint communiqué at its conclusion as a sign of weakness and inefficacy. But it takes decisiveness to opt not to issue a statement rather than produce a bland and meaningless one just for the sake of doing so.

Formal meetings are judged by how or whether they serve their purpose while in session, not by the feel good diplomatic summaries issued afterwards. As a process, Asean proceedings have seldom if ever been “full glasses”, but the uninitiated would see the “glasses” only as half-empty.

Asean’s core purpose has always been the quality of membership relations. How others see it is up to them, but this is no more than a concern for Asean’s public relations department if there is one.

Laos’ Asean chairmanship this year and its hosting of the 44th and 45th Summit over the week have predictably been scrutinised critically. A typical complaint is the seeming absence of any definitive resolution on the Myanmar impasse or the South China Sea disputes.

No annual summit is like a task force producing fail-safe solutions for outstanding issues. A small and underdeveloped Laos is already doing its best tackling the mammoth logistical and financial demands of hosting a series of international conferences at the highest official levels.

Any other country chairing Asean this year would face the same challenges. Asean makes no judgment about the economic status of members while helping less endowed members fulfil their financial obligations.

Asean is better at avoiding upheavals like Myanmar’s or war-torn Cambodia’s before its 1999 membership, than in conclusively resolving conflict that has occurred. It’s still not perfect, of course.

Asean’s record still compares favourably with the European Union’s, which failed to prevent the Kosovo and Ukraine wars. Nato (the North Atlantic Treaty Organisation) as a military alliance may mitigate these conflicts but has instead instigated and amplified the Ukraine war.

The EU and Asean were once described as the world’s most successful regional organisations, in that order, but that was before Brexit, when Britain exited the EU in 2020. No Asean country has sought to leave despite some challenges, while several countries not eligible to join have nonetheless tried.

The next and final member of Asean is Timor-Leste, the former Portuguese territory and Indo-nesian province of East Timor. It is the only sovereign nation in South-East Asia still to join Asean.

Others, from Sri Lanka and Papua New Guinea to Mongolia and Turkey, have reportedly sought Asean membership, but were never seriously considered. Timor-Leste is different not least because it is in South-East Asia, although its Asean journey has been long and challenging.

In 2006 Timor-Leste submitted a “soft application” to join, and the following year Asean signalled a “willingness in principle” to consider it. Most Asean member states endorsed its application, but not all.

Meanwhile Dili worked hard to fulfil membership requirements by acceding to Asean norms and conventions, including the Treaty of Amity and Cooperation in South-East Asia. It even introduced Asean Studies in schools, unlike most Asean countries.

Dili formally applied to join Asean in 2011, and Asean responded in 2022 with an “agreement in principle” to admit it. Membership remains a work in progress, with the Laos Summit during the week a part of that journey.

The state of the South China Sea’s multiple disputes has also been taken as a measure of Asean’s competence. Any catastrophe resulting from the disputes would be of concern to Asean as it would be to anyone else.

However, the disputes are between individual sovereign nations as neighbours and involves less than half the Asean membership. Asean is quietly confident that they can be resolved or are resolvable with time, provided there is no ulterior motive or foreign agenda at play.

Asean understands that the region has managed challenges before and wants that to continue. Anything less will not be Asean, nor will the region be sovereign.

Bunn Nagara is director and senior fellow at the BRI Caucus for Asia-Pacific, and an honorary fellow at the Perak Academy. The views expressed here are solely his own.

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China's 'moment' at ASEAN Summit a wake-up call for US sincerity

Western media have appeared to function under a consistent principle – whenever international affairs are at play, they are framed as a stage for major power rivalry. Unsurprisingly, the just-concluded ASEAN Summit was once again interpreted through the lens of US-China competition. This time, however, what was revealed was not US' diplomatic advantage, but rather its increasingly visible diplomatic predicament.

We choose our own friends, China remains a key ally

‘We do not have a problem with China’: Malaysian Prime Minister Anwar Ibrahim

MELBOURNE: As a “fiercely independent” nation, Malaysia will not be dictated to by anyone over its relations with China or any of its important neighbours, says Datuk Seri Anwar Ibrahim.

“While we remain an important friend to the United States, Europe and here in Australia, that should not preclude us from being friendly to one of our important neighbours, specifically China,” the Prime Minister said.

“We are fiercely independent. We do not want to be dictated to by any force.

“If they have problems with China, they should not impose them upon us. We do not have a problem with China,” Anwar said in a joint press conference with Australian Prime Minister Anthony Albanese during his official visit to the country yesterday.

Asked about how Sinophobia manifested itself and its effect on the region, Anwar replied that Malaysia upholds an “open trading policy to encourage investments from foreign countries.”

“They have levied some criticisms against us for giving additional focus to China. Right now, China seems to be the leading investor in Malaysia.

“Cumulatively, it’s still the United States of America,” he added.

On Feb 27, Anwar had decried “China-phobia” among US and Western allies in an interview with the Financial Times in the United States, questioning why Malaysia would “pick a quarrel” with China, its largest trading partner, in response to US criticism of Malaysia’s ties with Beijing.

“Why must I be tied to one interest? I don’t buy into this strong prejudice against China, this China-phobia.”

Calling China an important neighbour, he said Malaysia would give priority to enhancing relations with Beijing in terms of trade, investment and culture.

Anwar, who is in Australia with his wife Datuk Seri Dr Wan Azizah Wan Ismail and several ministers and leaders, will attend two major programmes – the Malaysia-Australia Annual Leaders’ Meeting and the Asean-Australia Special Summit.

Warm welcome: Anwar shaking hands with Albanese at Government House in Melbourne, Victoria. Looking on is Governor of Victoria, Margaret Gardener. — Bernama

On the Palestinian-Israeli conflict, Anwar lauded the Syrian government for supporting the call for a ceasefire and enhancing media efforts in Gaza.

“The consensus is in calling for a ceasefire and good humanitarian support, and probably avoiding the contentious issues between Palestine and Israel. At least for now, it is to cease fire and provide humanitarian assistance.”

Albanese also reiterated his call to end civilian suffering through a humanitarian ceasefire, the release of hostages, and a two-state political solution for Palestinians and Israelis to live with security and stability.

On the 10th anniversary of flight MH370, which went missing on March 8, 2014, Anwar said Malaysia would not hesitate to renew the search for the aircraft if there was “compelling evidence.”

“We will be glad to reopen (the search) because I don’t think it’s a technical issue. It is an issue affecting the lives of people, and whatever needs to be done must be done,” he said.

Both Anwar and Albanese also agreed that Malaysia and Australia would like to achieve more growth in trade and economic relations, especially in green energy and education.

“There’s a real potential for further institutional investment from Australia into Malaysia as well, with universities and tertiary education being a real prospect.

“Australia remains an important supplier of LNG to Malaysia. We have so much in common in our economies that is quite complementary,” Albanese said.

He also said Australia was focused on this region despite receiving critical commentary about it sometimes.

“We make no apologies for our focus being on South-East Asia in the Indo-Pacific because this is where our future economic prosperity will be determined.

“We’re living in this region, the fastest-growing region of the world. What that presents is an enormous opportunity for both our nations,” he said.

Anwar replied that Malaysia was committed to facilitating all avenues that both countries could explore – including renewable energy, green technology, digitalisation, food security and education opportunities involving top Australian institutions.

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Recession unlikely for global economy but challenges linger on

 

THE global macroeconomic picture is still more sluggish than investors would have liked, particularly when viewed from the gross domestic product (GDP) growth perspective for the first half of 2023 (1H23), although it remains a stretch to say the world is heading for a recession.

A quick glance across the Causeway to Singapore sees the city-state registering a 0.5% yearon-year (y-o-y) growth rate for the second quarter of the year (2Q23), extending marginally from the 0.4% expansion it charted for the preceding quarter.

Elsewhere, such as in major markets like the United States, China and the eurozone, economists are of the opinion that growth has been sturdy during 1H23 but stiff hurdles still remain on the horizon.

While acknowledging that global GDP growth has been slower so far in 2023 due to several familiar factors such as higher interest rates and elevated cost pressures, newly appointed Bank Negara governor Datuk Abdul Rasheed Ghaffour is also not expecting the global economy to slip into recession.

He says resilient domestic demand in advanced economies is providing sufficient support, while also anticipating worldwide trade to improve towards the end of 2023.

Most notably, he perceives China’s slower-than-expected recovery to have limited impact on Malaysia’s own economic expansion and improvement.

“Malaysia’s economy is well diversified in terms of products, services and trade partners, which would cushion the Chinese impact,” says Abdul Rasheed.

According to Bernard Aw, chief economist at Singapore’s Coface Services South Asia-pacific Pte Ltd, although the global economy has been resilient year-to-date, growth outlook in the second half remains challenging, not the least from increasing signals of weakening Chinese economic activity.

Forecasting global GDP expansion to be at 2.2% y-o-y for 2023, and anticipating a similar growth rate of 2.3% growth for next year, he says: “We expect Asean GDP growth (2023: 4.3%; 2024: 4.6%) to be generally faster than advanced economies – at 4.3% and 4.6% for 2023 and 2024 respectively – as tourism recovery and domestic demand drives economic activity.”

Continuing subdued external demand for the region would imply that domestic demand has to continue to partially offset some of the slack, Aw, tells Starbizweek.

“However, the challenging economic environment worldwide, relatively high inflation and interest rates means that even growth in domestic consumption and investment may fall short of expectations,” Aw opines.

Commenting on the overall global interest rate environment, he believes that the trend of disinflation would continue into 2H23, mainly driven by lower energy prices, coupled with China’s deflation having fed into lower export prices, which has also moderated global price pressures.

On the flipside, Aw thinks underlying inflation will remain fairly sticky, despite not being severe enough necessarily for central banks to revert to hiking rates.

“Having said that, they will likely maintain the current restrictive interest rates for a longer-than-expected period,” he says.

Earlier in July, it was reported that the United States economy had grown 2.4% y-o-y in 2Q23, up from the 2% it posted for the first three months of the year and bringing 1H23 GDP to a commendable 2.2%.

“The improved expansion rate had been driven by consumer spending, on top of increases in non-residential fixed investment, government spending and inventory growth.

At the same time, China had registered a 6.3% 2Q23 y-o-y GDP growth rate, which was also an improvement from the 4.5% charted in the previous quarter.

The acceleration however was slower than the expected 7.3% forecast by economists on a Reuters poll, dragged back by tepid demand and sinking property prices which has sapped consumer confidence.

On the same note, chief executive of Centre for Market Education Carmelo Ferlito feels that China’s post “zero-covid” recovery has been fragile since the beginning.

“The economy is not an engine to be switched on and off, but rather it is a living emergent order.

“As such, China is paying the price to a degree with its severe, nation-wide lockdowns while it was implementing the zero-covid policy,” he says.

The decelerating growth in China, says Ferlito, is evidenced by the People’s Bank of China unexpectedly cutting a range of key interest rates on Tuesday, which is seen as an emergency move to reignite growth after new data showed the economy has decelerated further last month.

With Chinese officials from its National Bureau of Statistics also suspending reports on youth unemployment, he says the move would deprive investors, economists and businesses of another key data point on the declining health of the world’s second-largest economy.

Divulging more numbers, Ferlito says the twin moves of cutting rates and holding back unemployment data from the Chinese government has coincided with new data showing a slowdown in spending growth by consumers and businesses.

“Concurrently, factory output grew much less than expected, adding to a recent raft of worrying signals. For the first time since February, China’s headline measure of unemployment rose, climbing to 5.3%.

“The jobless rate for people ages 16 to 24, meanwhile, had marched steadily higher for six consecutive months to hit a series of record highs, culminating in a reading of 21.3% in June,” he says.

Ferlito says an economic trichotomy is emerging on the global scene, before adding: “The United States is still fighting inflation, but countries like Germany and Holland are starting to experience technical recession, while China is facing challenges of its own.

“It is that post-lockdown crisis that the CME predicted two years ago.”

Echoing Bank Negara governor Abdul Rasheed, he re-emphasises that it is important to look beyond GDP figures, making his case that if the GDP of a country declines because of a cut in impractical government spending, that would be positive for a country.

Conversely, he argues if GDP growth were to accelerate due to an increase in spending financed by debt, it ultimately would be a bane to the government’s coffers and the national economy.

Meanwhile, the International Monetary Fund (IMF) is predicting a 3% GDP global growth rate for this year and the next, receding from the 3.5% achieved in 2022.

It says the rise in central bank policy rates to stave off inflation has continued to weigh on economic activity, but the good news is that global headline inflation is expected to fall from 8.7% last year to 6.8% in 2023 and 5.2% in 2024.

“The recent resolution of the US debt ceiling stand-off and strong action by authorities to contain turbulence in the US and Swiss banking earlier this year reduced the immediate risks of financial sector turmoil. This moderated adverse risks to the outlook,” the IMF says.

However, it cautions that the balance of risks to global growth remains tilted to the downside, as inflation could remain high and even rise if further shocks occur, including those from an escalation of the Russia-ukraine conflict.

Moreover, the IMF warns that China’s recovery could slow further, partly due to unresolved real estate problems, with negative cross-border spillovers.

On the upside, inflation could fall faster than expected, reducing the need for tight monetary policy, and domestic demand could again prove more resilient

• By keith Hiew keith.hsk@thestar.com.my
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