Many Asian countries have decided their safest course is not choosing between the United States and China but to diversify away from both. When neither great power embraces free trade, the rest of the world will simply go elsewhere.
Nine years after Trump killed the Trans-Pacific Partnership, which was supposed to be an economic bulwark against China, Southeast Asian countries are deepening trade among themselves through the Regional Comprehensive Economic Partnership. The bloc excludes the U.S.
Japan’s government has doled out millions in subsidies to companies like Isuzu Motors and Mitsumi Electric for moving production away from China to Southeast Asia. While Tokyo remains a close U.S. military ally, its economic planners are building redundancy rather than deepening dependence on Washington.
India has pursued parallel tracks: courting investment from Japan and South Korea while poaching manufacturing contracts from China. Most iPhones sold in the U.S. are now made in India, for example, marking a major shift away from China in Apple’s supply chain. Just days after the European Union signed a sweeping trade agreement with India, Trump announced Monday that he finalized a deal with Prime Minister Narendra Modi to lower U.S. tariffs on imported goods from 25 percent to 18 percent.
The pandemic — when Beijing paralyzed logistics by closing its borders — forced countries and companies to reassess their reliance on China as the world’s factory. The Chinese Communist Party’s growing military assertiveness also spurred talk of the need for “decoupling,” de-risking, or “friend-shoring.” This should have been a major opportunity for the U.S.
Yet, during Trump’s second term, tariffs returned as a blunt instrument imposed on allies as much as adversaries. Japan and South Korea have been publicly threatened, cajoled and pressured to make concessions and promises to invest billions in America. Trade policy has become more personalized and transactional.
China has tried to present itself as a more stable, reliable and predictable partner. In recent weeks, the U.K. and Canada prime ministers kowtowed to Xi Jinping in misguided bids to demonstrate independence from the U.S.
But that’s not a winning bet. China has a demographic time bomb due to a rapidly aging and shrinking population. Its economy is burdened by debt, mostly at the local level, that has weighed down the property sector. High youth unemployment is causing official nervousness about potential future unrest. Industrial overcapacity has raised global concerns about dumping. China’s global trade surplus of $1.2 trillion set a world record, and the country’s official growth numbers are suspect.
The U.S. is far from being sidelined. It remains the world’s largest economy and its biggest consumer market. No serious country is trying to wall itself off from American trade or investment. But they are preparing for a world in which access to the U.S. market can no longer be taken for granted — and in which Washington’s rules, once predictable, can change abruptly.
These wounds are self-inflicted. There’s no sense making them worse.
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