China and ASEAN’s Restructuring Reality in Light of the USMCA T…

Source: Global Trade Review

The updated North American trade agreement between the United States, Mexico, and Canada that replaced the old NAFTA agreement is very much a policy that correlates with the 2017 U.S. National Security Strategy that emphasizes heavily on great power competition with the People’s Republic of China (PRC). In fact, the new agreement is geared towards subtly tackling Washington’s ongoing trade and national security grievances with the PRC. A combination of geopolitical tensions in Southeast Asia and the fallout from Beijing’s handling of the Corona Virus have been added as additional complaints to a long list of existing ones. From a trade and U.S. national security perspective, the U.S., Mexico, and Canada Agreement (USMCA) seeks to tackle those issues such as securing supply lines and developing manufacturing hubs in mainly North America.

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This is a major development as it seeks to counter the PRC as the world’s primary manufacturer. In addition, this is occurring while the international system is adapting to a new global norm in movement restrictions, enhanced geopolitical friction, and skirmishes, as well as supply chain security and shortage issues. Since the beginning of the U.S. and China trade war, foreign companies with infrastructure in mainland China have gradually been seen preparing or actually having moved their businesses to other places such as India, Vietnam, Malaysia, Philippines, Japan, Taiwan, and elsewhere. However, the USMCA attempts to compete with this trend by presenting favorable economic, trading, and manufacturing conditions that is supposed to help fortify both jobs and supply lines for North America as a whole.

President Trump’s trade adviser, Peter Navarro, mentioned in a PBS interview that the problems associated with the NAFTA and China trade agreements of the 1990s are being rectified via the USMCA. He mentioned in the interview that “NAFTA was structured in such a way that American jobs were lured into Mexico by Mexico’s cheap labor and environmental controls. And Mexico lost a lot of its supply chain to China. What USMCA does is turn that completely on its head. It’s structured in a way to make North America the manufacturing powerhouse of the world, in a way that helps American workers.”

With that said, the USMCA deal tackles issues pertaining to the protection of intellectual property, the free movement of digital data, trade secret protection, and stronger penalties for theft, counterfeiting, or pirating of products among other corporate governance issues. The USMCA deal is essentially reminding Beijing and the world that global supply and manufacturing restructuring are indeed happening and that can lead to other regions doing similar agreements in light of the new global strategic reality. In addition, many may question the rationale for finalizing this agreement during both social, health, and economic uncertainties in the U.S. and elsewhere, however, an old quote from the 18th century reminds us that “the time to buy is when there’s blood in the streets.”

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In this case, the USMCA is an attempt by the U.S. to divest itself of its China addiction by creating a new system in North America that is more desirable and within its realm of influence in regard to things like protecting intellectual property, trade secrets, pirating and counterfeiting of products, etc. These have been long-held grievances by U.S. policymakers and while it may not solve all the national security issues, it is certainly a start. However, this puts The Association of Southeast Asian Nations (ASEAN) into an interesting leveraging position as situations between the United States and European Union evolves. In May 2020 it was announced that ASEAN overtook the EU and U.S. as China’s largest trading partner in light of the impact of the global pandemic. For instance, Chinese imports from Vietnam and Indonesia rose by 24% and 13% year-on-year.

European Commission President Ursula von der Leyen speaks during a news conference with European Council President (not seen) following a virtual summit with Chinese President in Brussels, on June 22, 2020. (Photo by YVES HERMAN / POOL / AFP) (Photo by YVES HERMAN/POOL/AFP via Getty Images)

This growth represents greater supply chain integration between the two regions and ASEAN has an opportunity to leverage Beijing in trade while it is currently in a trade dispute with the United States and European Union. The EU recently announced tariffs being placed on China for subsidizing its imports that can lead to future policies that could evolve into a possible trade war between the two countries. If this occurs, ASEAN may end up benefitting greatly from this as well as gaining leverage power with Beijing in areas like trade and security.

However, the USMCA deal also offers both challenges and opportunities to ASEAN nations as well. Since the USMCA will attempt to restructure the supply chain and manufacturing hubs to North America, it will still reinforce U.S. commitment to Southeast Asia as the trade routes in the region should remain heavily important to U.S. interests. Meanwhile, the new USMCA deal will most likely impact the next round of U.S.-China trade negotiations while Beijing attempts to rekindle life in its Belt and Road Initiative (BRI) projects that have slowed down immensely due to the CoVid-19 pandemic.

From a defense perspective, the USMCA enables the U.S. to rededicate its positioning strategy in Southeast Asia as well as improve its relationships with ASEAN nations. A 13 July 2020 press statement by U.S. Secretary of State, Mike Pompeo, illustrated this in an updated policy towards the PRC’s controversial maritime claims in the South China Sea. The first paragraph of Pompeo’s press statement reinforced the point that the U.S. is making it clear that “Beijing’s claims to offshore resources across most of the South China Sea are completely unlawful, as is its campaign of bullying to control them.” In addition, the last paragraph of the statement mentioned that, “America stands with our Southeast Asian allies and partners in protecting their sovereign rights to offshore resources, consistent with their rights and obligations under international law. We stand with the international community in defense of freedom of the seas and respect for sovereignty and reject any push to impose “might makes right” in the South China Sea or the wider region.”

This updated Washington policy is widely considered a much stronger U.S. position towards Beijing’s salami slicing-tactics in the South China Sea. The USMCA trade deal with Mexico and Canada enables American policymakers to refocus attempts at revitalizing the Asian pivot that began under the Obama administration. In addition, this also enables other regional players such as Taiwan, Japan, India, Australia, South Korea, and the Philippines to take further steps at preparing for greater regional competition as well as coordination and access to the re-dedicated U.S.