Building Complementarity and Resilience in ASEAN amid Global Trade Uncertainty | Asian Development Bank

Building Complementarity and Resilience in ASEAN amid Global Trade Uncertainty

Publication | October 2018
Building Complementarity and Resilience in ASEAN amid Global Trade Uncertainty

This brief explores how greater regional cooperation and integration within the ASEAN Economic Community can guard against the effects of global trade uncertainty.

Growing bilateral trade tensions between the United States (US) and the People’s Republic of China (PRC) are a concern for members of the Association of Southeast Asian Nations (ASEAN). Most ASEAN economies are open and benefit from export-led growth. They have significant trade ties with the US and the PRC and also export goods—such as electronics or automobiles—now targeted by US trade restrictions. In the near term, the US–PRC trade tensions will likely undermine global trade by raising import prices.

The escalation of US–PRC trade tensions will have both direct and indirect effects on ASEAN. The direct impact will likely be negative—as global trade falls due to the increase in import prices. The indirect impact—which would include possible trade diversion or creation effects—could be positive, particularly for countries that compete with the PRC in the export goods market.

Key Points

  • Escalating trade tensions between the US and the PRC prompt the Association of Southeast Asian Nations (ASEAN) to build greater complementarity among the member economies and enhance their economic and financial resilience through (i) diversifying their economic and trade structure, (ii) upgrading competitiveness and innovative capacity via domestic and regulatory reforms, and (iii) supporting high quality regional trade agreements to promote regional economic integration.
  • Over time, ASEAN economies have become more services-oriented; the share of regional demand on their exports of goods and services— including tourism—has been rising; also, the product composition and market destination of their exports are more diversified—all of which lessens the impact of escalating trade tensions.
  • Liberalizing services will (i) attract more foreign direct investments in telecommunications, financial and business services; (ii) increase use of digital technology and e-commerce; and (iii) boost services trade (including tourism). Investing in greater services infrastructure, is also important.
  • Promoting greater regional cooperation and integration to better attain a more open ASEAN Economic Community will help increase market size, exploit economies of scale, and enhance competitiveness and innovation.
  • Speeding up implementation of both the Regional Comprehensive Economic Partnership and Comprehensive and Progressive Agreement for Trans-Pacific Partnership is another effective way to lock in the gains from existing free trade agreements and help promote deeper integration across the region.