Regional power rejig in new age
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Regional power rejig in new age

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US President Donald Trump gestures to the press during his first term after attending the 31st Association of Southeast Asian Nations (Asean) Summit in Manila, Philippines, on Nov 14, 2017. AFP
US President Donald Trump gestures to the press during his first term after attending the 31st Association of Southeast Asian Nations (Asean) Summit in Manila, Philippines, on Nov 14, 2017. AFP

What happens to a region when the rules of global trade no longer apply? For The Association of Southeast Asian Nations (Asean), this is no longer a hypothetical question -- it is our pressing reality. This week, Donald Trump was sworn in as the 47th president of the United States, ushering in what many see as the end of the post-liberal trade era. This era, defined by hyper-globalisation and a rules-based system governed by multilateralism, is now giving way to an unpredictable and fragmented global order.

I began my role as Thailand Trade Representative on Nov 5, 2024 -- the same day President-elect Trump won the US election. His promise to implement a mercantilist and protectionist trade strategy has since sent shockwaves through the global economy. As US trading partners brace for the economic impact of Trump 2.0, a broader question emerges: how should they strategically navigate this era of great power rivalry, economic fragmentation, and rapid technological transformation?

It is too early to tell if this emerging era of protectionism would benefit or harm developing economies. The US-China rivalry forces nations and regional blocs into tough decisions. For instance, the recent US export controls on chips to hinder China's AI advancements present a stark dilemma: align with US rules or prioritise access to China's vast markets.

Indeed, Asean stands at a crossroad. To move forward, countries must embrace a collective vision that aligns domestic goals with regional strengths. At the recent High-Level Executive Roundtable hosted by the Economic Research Institute of Asean and East Asia (Eria) in Jakarta, I proposed three guiding principles to shape this vision.

First, do no harm. Trade policies must be recalibrated to avoid adverse effects on other countries. Economists refer to this as a "beggar-thy-neighbour" approach, where domestic gains come at others' expense. We should avoid strategies that provoke excessive retaliation. In the long run, no one benefits from a world dominated by high tariffs and subsidies.

The 2018–2019 US-China trade war serves as a cautionary tale. Thailand's exports to the US initially surged as Chinese goods faced tariffs, but much of this was due to Chinese companies rerouting products through Thailand. Meanwhile, Thailand's domestic steel and electronics industries came under pressure from cheaper Chinese exports flooding the Asean market. This underscores the need for safeguards, such as anti-dumping measures, to protect domestic industries and ensure trade policies do not worsen regional trade tensions.

Second, foster innovation through industrial policy. Traditionally, industrial policies were associated with distortionary trade measures like tariffs and subsidies to protect domestic industries. However, a new approach has emerged to meet the demands of the modern economy, including digitalisation, green transitions, and geopolitical challenges. This new form of industrial policy focuses on enhancing domestic capabilities and competitiveness through close collaboration between governments and firms, emphasising knowledge sharing and feedback. Crucially, such public-private partnerships must be grounded in robust accountability systems to achieve clear, measurable outcomes, such as creating good jobs or advancing sustainability goals.

Industrial policies should move away from blanket subsidies toward tailored solutions, such as targeted job training and infrastructure improvements, that directly address local business challenges. This approach minimises inefficiencies, reduces costs, and fosters sustainable growth. Additionally, industrial policy must extend beyond the manufacturing sector. With technology enabling the trading of services, priorities should include digital connectivity and AI governance to harness opportunities in the services economy.

Third, collaborate strategically. Asean must deepen regional integration to develop industries of strategic importance. Intra-Asean trade, which accounted for 22% of the region's total trade in 2023, has proven remarkably resilient, even during the pandemic. Building on this momentum, two key areas stand out for strategic collaboration: the Asean Digital Economy Framework Agreement (Defa) and strengthening regional semiconductor supply chains.

The rise of e-commerce, fintech, and digital connectivity presents tremendous growth potential for Asean. With Defa's progressive rules and exponential investments in 5G networks and data centres, the region's digital economy could double to US$2 trillion by 2030, positioning Asean as the world's fourth-largest economy. Importantly, regional collaboration must address the diverse levels of digital readiness among member countries and engage stakeholders constructively to ensure inclusivity.

Similarly, the semiconductor industry offers Asean a chance to become a global leader. Regional collaboration is essential to attract investments and enable technology transfer, fostering a resilient semiconductor ecosystem. Thailand's National Semiconductor Board, chaired by the prime minister, aims to accelerate national progress by leveraging the country's strong digital infrastructure, strategic location, and workforce development plans. By linking these national ecosystems, Asean can strengthen regional coordination, ensuring that both national and regional benefits are fully realised.

Trade and industrial policies can be strategically leveraged to strengthen regional influence in an era of protectionism and economic fragmentation. Asean nations can benefit from policies that enhance domestic capabilities with robust accountability mechanisms, ensuring no harm to neighbouring economies. Collaboration is the cornerstone of this vision. By building on existing frameworks and adopting innovative industrial strategies, Asean can lead with unity and purpose. This collective effort could mark a transformative chapter, redefining Asean's regional power in a fragmented global landscape.

Werapong Prapha is Thailand Trade Representative.

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