Japan and South Korea’s escalating trade war threatens regional growth. At a diplomatic meeting in Bangkok, ASEAN struggled to make a significant impact towards its resolution.
By Zachary Frye
The 52nd ASEAN Foreign Ministers’ Meeting opened in Bangkok on July 29, 2019. ASEAN members plus China, Japan, Korea, and the United States were in attendance. The ongoing trade impasse between Japan and Korea was at the forefront of discussions.
Despite the potential economic risks that accompany a protracted trade war, ASEAN leaders failed to foster meaningful progress on the issue. ASEAN wants to end the economic uncertainty in the region but lacks a strong diplomatic position to guarantee it.
Regardless of its ability to influence policy in East Asia, ASEAN should continue to push for free trade and timely dispute resolution among its neighbours.
The trade war brings fresh uncertainty to markets
The rift stems from decades-long conflict. In November 2018, the Korean Supreme Court ordered Mitsubishi Heavy, a Japanese engineering and electronics company, to compensate South Koreans for forced labour practices during World War II.
After the plaintiffs sought to hasten the sale of seized assets in early July, Japan slapped import restrictions on South Korea’s semiconductor and electronic displays market. South Korea swiftly decried the move as retaliatory.
Japan inflamed tensions further by revoking South Korea’s preferential trade status designation, seriously eroding bilateral relations. The dispute is contributing to anxiety in global markets.
Japan and South Korea are two high-powered economies with significant global reach. Japan is the third-largest global economy, and South Korea is the 11th. Japan’s economy alone accounts for more than 6% of global gross domestic product (GDP).
There is some evidence, however, that ASEAN might be spared of the trade war’s worst effects – at least for now.
At the summit, Japan’s Minister of Economy, Trade, and Industry, Hiroshige Seko, sought to assuage the region’s concerns: “Taiwan and the member states of ASEAN have been strictly managing their exports thus far, and we also have a close economic relationship with them. As such, I don’t think this will affect our global supply chain.”
Japan’s electronic displays sector accounts for over 36 billion yen (US$ 340 million) in Southeast Asia. Over 22 billion yen (US$ 208 million) is moving through ASEAN in the semiconductor market. For the time being, these trade flows should remain uninterrupted.
ASEAN is pushing for free trade but failed to negotiate a resolution
In Bangkok, the bloc stated its preference for Japan and South Korea to overcome their differences for the sake of the global economy.
Vivian Balakrishnan, Singapore’s Foreign Minister, voiced concern over the impasse. “Japan should increase its number of whitelist [preferential trade status] countries, not reduce it,” he added.
But in the end, Korea and Japan failed to find common ground, and there was little ASEAN could do to push the sides into an agreement. ASEAN’s reputation as a neutral organisation may have contributed to the bloc’s ineffectiveness.
Since its inception in 1967, it has maintained a policy of non-interference in the internal affairs of its members. Depending on one’s standpoint, ASEAN’s ‘neutrality’ can be characterised as a compliment or a critique.
In this case, the bloc’s position as reliable facilitators allowed it to engage with all parties on the international stage. The downside, however, is that the facilitators had little power as effective negotiators.
The US and China’s retreat is leaving it to other nations to promote the principles and value of free trade
The US and China were also unwilling or unable to make a meaningful impact on the impasse.
With the two major global economies embroiled in a protracted trade war of their own, their ability to handle other country’s disputes is severely diminished. When asked if the US would take some action in the dispute, President Trump acknowledged that he would at the request of both parties but added that refereeing a dispute of this magnitude would be “like a full-time job.”
There are also concerns that the US and China are untrustworthy allies. In a regional survey, 51.5% of respondents had little to no confidence that China would ‘do the right thing’ in contributing to global peace, security, prosperity and governance in 2019. For the US, that number stood at 50.6%.
In the absence of strong leadership from global powers, it falls on blocs like ASEAN to push for reliable free trade and global exchange.
During a heightened phase of the US-China trade war, this becomes even more crucial. As a weaker yuan reduces China’s purchasing power, demand for an array of regional products is set to subside, affecting both private and public budgets.
With continued development, the bloc’s standing will rise
Although ASEAN’s influence on world governments is limited, it has a significant role to play in promoting regional harmony. But in order to fulfil its potential, the bloc needs to remain committed to improving its diplomatic position.
As it stands, ASEAN member states are too volatile – and too dissonant – to wield authority on the international diplomatic stage.
To increase its clout, ASEAN should double down on promoting regional partnerships. Sustainable, fair and just economic and social initiatives should be at the heart of domestic policies.
The region is lifting millions of its citizens out of poverty and helping contribute to the rise of a new global middle class. To facilitate further momentum, it’s crucial that ASEAN continue supporting economic liberalism.
Ratification of the RECP pact – a proposed trade deal between ASEAN and other regional powers, including Japan and South Korea – would buttress its commitment toward liberal economic values.
In the long term, ASEAN’s international standing will be judged by the nature of its internal affairs. By coupling economic growth with good governance and social progress among member states, its diplomatic leverage will grow.
Korea and Japan’s trade dispute may not directly hurt ASEAN markets, but a wave of protectionist policies around the globe only increases economic uncertainty moving forward.
In order to mitigate its worst effects, ASEAN should stay the course and emphasise the region’s shared commitment to free trade and the unimpeded global exchange of goods.