Editor’s Note: The following article is part of a new USIP essay series, “Southeast Asia in a World of Strategic Competition.” The opinions expressed in these essays are solely those of the authors and do not represent USIP, or any organization or government.

Recent years have witnessed intensifying U.S.-China competition and tensions in both the political and economic spheres, particularly in areas related to technology, global supply chains, infrastructure connectivity, trade and finance. Southeast Asia has become the center of this strategic rivalry. In the region, the Association of Southeast Asia Nations (ASEAN) has positioned itself as the “central” actor in shaping the regional order and positively engaging with external powers. However, ASEAN’s centrality is increasingly challenged by these two major powers, who have deep and complex ties with Southeast Asia. While this competition poses challenges for ASEAN, there are also opportunities for countries like Laos and others in Southeast Asia to leverage in this tense geopolitical moment.

Chinese workers at the entrance to a tunnel near Vang Vieng, Laos, which is part of a railway project from China to Laos, May 8, 2017. (Adam Dean/The New York Times)
Chinese workers at the entrance to a tunnel near Vang Vieng, Laos, which is part of a railway project from China to Laos, May 8, 2017. (Adam Dean/The New York Times)

Both major powers have launched a number of initiatives in the region as their competition has ratcheted up. In an effort to increase the U.S. footprint, the U.S. government launched the Indo-Pacific Economic Framework for Prosperity, a framework for economic cooperation among regional states including some ASEAN members. Another notable U.S.-led mechanism is the Lower Mekong Initiative, which is a partnership with Cambodia, Laos, Thailand and Vietnam promoting cooperation in the Mekong region by focusing on water management, education and health care.

On the other hand, China has long played an integral role in Southeast Asia’s economic development through the Belt and Road Initiative (BRI), its initiative to promote economic development and inter-regional connectivity. Moreover, China has been engaging in diplomatic efforts to strengthen its ties with regional countries, including through the establishment of the Mekong-Lancang Cooperation, the Asian Infrastructure Investment Bank, the Shanghai Cooperation Organization, the Regional Comprehensive Economic Partnership and BRICS. 

Countries like Laos have a tricky balancing act to play in navigating this major competition. But U.S.-China competition and decoupling — what U.S. officials are now calling “derisking” — also provides opportunities for Laos and ASEAN as a whole.

Laos Amid Major Power Competition

Laos is a small, land-locked nation, situated among some of the world’s fastest-growing economies. For that reason, Laos has sought to maintain good relations with neighbors and beyond to ensure stability and development cooperation. Its foreign policy emphasizes cooperation over conflict. At the same time, Laos has political and economic aspirations that hinge on ensuring cooperation with regional and global powers.

The U.S.-China rivalry has inevitably created geopolitical tension in the region, which has implications for Laos and ASEAN, which Laos will assume the chair of in 2024. Therefore, Laos needs to carefully navigate this complex geopolitical landscape to safeguard its interests and maintain economic and political stability.

Opportunities and Challenges for ASEAN

ASEAN’s economic ties to the United States and China have been important for the bloc. The two countries are ASEAN’s largest trading partners, and their economic growth has been instrumental in driving the economic development of ASEAN members. U.S.-China economic decoupling in recent years, however, disrupted the two powers’ significant trade relations, which has been one factor leading to a comparative slowdown in the Chinese economy. This also has had a ripple effect on ASEAN countries.

Particularly in recent years, ASEAN nations have increased their reliance on China for trade. In 2022, China represented nearly 20% of exports to ASEAN and received 27.2% of the blocs' imports. This indicates the close trading ties between ASEAN and China, the heart of the global industrial chain. A large portion of ASEAN's exports to China eventually make their way into U.S.-China trade after being further processed or assembled. Therefore, a decrease in U.S.-China bilateral trade eventually cascaded back to Southeast Asia through regional supply chains. 

While there may be losers in the major powers’ economic standoff, a growing number of ASEAN member states could benefit from the bilateral turmoil. Perhaps the most notable example is how Southeast Asia countries have benefited by hosting new businesses looking to move their manufacturing operations out of China. Multinational corporations are gradually shifting their manufacturing to some Southeast Asia nations, particularly in countries where there are competitive advantages such as low labor costs, investment-friendly regulations, human resource and infrastructure capacity.

However, both the United States and China are increasingly employing re-shoring initiatives, like the U.S. “Buy American” and China’s “Made in China 2050” policies. The "Buy American" initiative stipulates minimum domestic content standards for government purchases, while China's new industrial policies encourage the use of domestic rather than imported inputs in the manufacturing supply chain. This will significantly harm ASEAN exporters of parts and components. In addition, the two countries are trying to reduce their technological interdependence and develop their own independent technology ecosystems.

Still, these trends will bring some benefits to ASEAN, likely increasing investment and growth opportunities as U.S. companies seek to diversify their supply chains away from China. This could also lead to a potential for increased technology transfer from the United States or China as technology companies seek to expand their operations in ASEAN countries.

But, some ASEAN countries such as Cambodia, Laos and Myanmar may struggle to keep up with the pace of technological development in the United States and China, which could lead to a wider technological gap between ASEAN and the two superpowers. This means that countries such as Vietnam with more potential will be able to reap extra benefits from the technology decoupling, while countries lacking tech capacity are more likely to lose out on this.

The Way Forward

As noted above, there are distinct prospects and challenges for ASEAN in the context of U.S.-China competition. Here are some ways ASEAN can respond to these ongoing challenges:

  • It is essential for ASEAN to adhere to its fundamental principles, especially ASEAN centrality and independence. This is because ASEAN's commitment to non-interference and consensus-based decision-making ensures that ASEAN member states have equal participation and influence in shaping regional policies.
  • More importantly, ASEAN needs to adopt a balanced and pragmatic approach to navigate the complex and dynamic situation, while leveraging our own strengths and opportunities. This can be done through dialogues and forums where member states engage in discussions and collaborate on security, economic and socio-cultural matters. This collective approach strengthens Southeast Asian nations' agency by giving them a unified voice in regional and international affairs.
  • Furthermore, ASEAN can engage in constructive dialogue with the United States and China, as well as regional powers like Japan, South Korea, India, Australia and the European Union, to balance competing strategic interests and assert its members’ agency, avoiding overreliance on any single external power.
  • ASEAN should promote economic integration through initiatives like the ASEAN Economic Community, which will create a single market and production base, enhance competitiveness, attract foreign direct investment and foster economic growth. Member states will negotiate trade agreements collectively to shape regional economic policies. At the same time, ASEAN should also enhance cooperation on innovation capacity, digital connectivity and resilience especially for developing economies within ASEAN such as Cambodia, Laos and Myanmar to be able to fully participate in the global supply chains. By doing so, ASEAN will be able to maintain its relevance in the Indo-Pacific region and beyond.
  • Last but not least, ASEAN countries should ensure they are not forced to pick sides, balancing relationships and deepening partnerships with the aim of achieving win-win cooperation.

H.E Mr. Mai Sayavongs is the director general of the Institute of Foreign Affairs, Lao PDR. He is a former Lao ambassador to the United States.

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