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Last week’s trade truce between Donald Trump and Xi Jinping has deferred all-out trade conflict between the world’s two great geoeconomic superpowers. But the rivalry remains in lower-profile theatres of combat, including the struggle between Washington and Beijing to pull other countries into their economic orbits.
A few days before the summit, the US apparently gained some valuable south-east Asian territory in that particular ground war in the form of deals with Cambodia and Malaysia. The agreements — unusually detailed by Trump’s standards — were the first of a planned string of deals with Asean nations that not only gave American exports highly preferential treatment but also appeared to recruit the countries firmly into the US geoeconomic gang.
On the face of it, this is evidence of a newly politicised trading system, countries forced to choose between the US and China. In reality, I strongly suspect governments will continue to chart a course between the two, which will depend on real-world incentives like access to rare earths or export markets rather than signing pieces of paper.
On closer inspection the Malaysia deal looks more like formalised coercion than a grown-up trade agreement. It contains a sweeping commitment that, if the US introduces any import restriction it considers necessary for its national or economic security (an exceedingly elastic concept), Malaysia will “adopt or maintain a measure with equivalent restrictive effect . . . or agree to a timeline for implementation that is acceptable to both Parties”. It also commits Malaysia to match US export controls and constrains it from making deals with countries the US doesn’t like, for which read China.
Taken literally, this would turn Malaysia into a geoeconomic US vassal state. Moreover, there is no formal dispute settlement system with an independent panel, just the prospect of Trump acting as judge, jury and vengeful executioner. As an aside, it’s disappointing to see veterans of Joe Biden’s administration cheering on this exercise in neocolonial gunboat trade diplomacy as though it were analogous to the pursuit of co-operative alliance-based economic security they talked about when in power.
So why did Malaysia sign? The immediate reason is obvious: the electrical and electronic products, including semiconductors, that Malaysia sells to the US each year, many made by American-owned companies, which help to make America its second-biggest national export market. Cambodia, a least-developed country that exports clothes and shoes, is even more dependent on US demand.
But Malaysia has evidently calculated that it can negotiate its way out of any disastrously damaging obligations. Zafrul Aziz, Malaysia’s trade minister, told me this week that the deal created a system of formal consultation rather than automatic alignment. “We are very clear that any actions taken under the agreement will be based on Malaysia’s interest and under Malaysian law,” Zafrul said. “There’s a consultation process, and if it’s not in our interest to follow the US we won’t.”
As for the absence of formal dispute settlement, Zafrul said: “If we don’t agree then we face the consequences and the US can put on tariffs or whatever, but at least this way we get to put our point of view. Otherwise they can do what they want without explaining the rationale.”
The minister also claimed that the recent rapprochement between the US and China meant there should be fewer points of tension than hitherto. This latter point looks highly optimistic to me: rivalries over rare earths and chip technology will involve hand-to-hand combat at regional and national level, even if they don’t provoke global confrontations. Malaysia has its own rare earths industry but it’s by no means independent of China.
But I do think that nimble economies that are flexible in shifting supply chains and adopting new technologies can continue to remain largely nonaligned in the global trade cold war. The US can block Malaysia’s component exports, but that will only weaken America’s own chip and tech industries, and unless Washington tries to coerce the whole of south-east Asia at once — a much bigger export market for Malaysia than the US alone — the goods will generally get through. It’s notable that, in contrast to China’s public outrage when Mexico recently proposed 50 per cent tariffs on imports of cars at the US’s behest, Beijing has been remarkably silent over Trump’s deals with Malaysia and Cambodia.
How much influence each superpower has will vary by country. The US offers an export market, but these days an increasingly fickle one, and access to dollar-based financial systems. China offers rare earths and green tech. Neither is dispensable.
As Zafrul told me: “We signed this [US deal] on Sunday. On Monday, we signed an [Asean] agreement with China.” From the point of view of prosperity and efficiency, an attempt to carve up the world economy through arbitrary power-grabs is clearly a retrograde step. But given the US’s balance of power with China, my money is still on the ability of agile governments to resist being turned into economic satellites. It’s not a comfortable place to be, but it’s not a powerless one either.
