Between Trade and Threat: Southeast Asia’s Difficult Balance Between China and the U.S.

Rivalry between the United States and China plays a pivotal role in the geopolitical dynamics of Southeast Asia. There are many challenging decisions to be made, starting with the South China Sea and continuing on through the global supply chain. Many are undertaking strategic hedging rather than deciding to pick a superpower exclusively. They are looking for business and alliances with the U.S. and its allies from China. India, Vietnam, and Malaysia have become other options to China in manufacturing due to the emergence of the “China+1” strategy. But with growing competition between the United States and China, the room for such a balancing approach is shrinking. The regional state’s protection of their interests has been made easier by economic pragmatism, but growing polarization is making it tougher, if not impossible, to engage in this “double game.”

Global supply chains are one of the most obvious areas where the U.S.-China competition is impacting. China has been the hub of manufacturing for decades due to its workforce, infrastructure, and industrial base. But with the U.S.-China trade war, the COVID-19 pandemic, and worries about dependence on one country, multinational businesses started to seek ways to lessen their reliance on China. This led to the concept of “China+1”; that is, companies maintain their business operations in China and build production capacity elsewhere. The purpose is to minimize risks and generate other production centers.

Vietnam is transformed into a manufacturing center of electronics, textiles, and consumer goods. Malaysia has gained a stronger foothold in electronic and semiconductor-related businesses, and India is gaining investment in electronics, automobiles, and pharmaceuticals. However, China+1 does not mean these countries are independent from China. They continue to rely on the Chinese manufacturing industry for parts, raw materials, and components. Those made in Vietnam or India could still be made from Chinese components before they reach Western markets. Economic diversification is taking place in tandem with ongoing reliance. That is a problem: regional states desire Western investment, and at the same time they need China’s economy. Full independence from China will cost, but such over-reliance could give strategic vulnerabilities.

The security aspect is another challenge. Security hedging is evident in the Philippines. In part because of the South China Sea tensions, Manila has been ratcheting up military cooperation with Washington and access to military facilities. Although Vietnam is not a formal military alliance with the U.S., it has strengthened military and maritime cooperation ties with various nations. Southeast Asian countries also have security ties with the U.S. and its allies.

These partnerships increase awareness in the sea, military capabilities, intelligence sharing, and deterrence but do not necessarily form alliances. But the governments are still cautious. Most do not want to be seen as part of an anti-China alliance in security cooperation with Washington. Their economies are tied to China, which has economic and diplomatic influence. With this, they reinforce their defense ties with Beijing, while remaining active in diplomatic and economic ties with the Chinese government. The key to strategic hedging is to not rely entirely on a single power but also to not openly challenge the other power.

Economic and security interests clash in the South China Sea the most directly. In addition to being a disputed maritime area, it’s also a vital path for international trade. A major conflict may cause shipping disruptions, higher transportation costs, and harm for trade-oriented economies. China is a trading partner for the nations of Southeast Asia, while its maritime operations raise security issues as well. The closer ties with the United States could boost deterrence alongside escalating tensions with Beijing.

There is yet another way in which technology and infrastructure are competing. Telecommunications networks, semiconductors, and digital infrastructure are becoming more and more a national security concern of the United States. The countries in the region are thus under pressure to think about Chinese participation in the sensitive industries. However, Chinese companies can offer the infrastructure and technology at reasonable prices, and Chinese development financing is attractive. The “economist’s choice” can easily become the “strategist’s choice. The selection of a technology provider, the investment in a port, or participation in an infrastructure project could have geopolitical implications.

For the countries of Southeast Asia, the biggest hurdle is to remain strategically independent as they deal with both powers. Countries have been able to hedge strategically because of the opportunities for trade, investment, and infrastructure development with China and security alliances and access to markets with the United States. However, with growing competition, this adaptability is being challenged. For Washington, it’s up to its regional partners to move toward firmer stances on technology, maritime security, and supply chains. Beijing, on the other hand, might grow more intolerant of military cooperation deemed hostile. This middle ground may then grow more precarious.

The answer for Southeast Asia might not be picking between Washington and Beijing, but between Beijing and Washington. Instead, the regional states must keep adequate space for cooperation with both without compromising the national interest. Greater cooperation among the ASEAN countries, more diversified supply chains and wider security cooperation will lessen reliance on any one power. Whether Southeast Asia can remain strategically autonomous and keep hedging with success or whether such strategic rivalry between the United States and China will eventually force Southeast Asian countries to side with one or the other will ultimately determine the stability of the region.