China Plus One
During the last Cold War, developing countries went to great lengths to remain non-aligned by playing both sides off each other. It didn’t work well. The maneuver had a nasty habit of triggering proxy wars: A sort of passive-aggressive nut-slap by the Great Powers that kept things from going apocalyptic.
Times have changed. A generation of globalization changed rivals into customers and brought peace and prosperity by hopelessly tangling the world’s supply chains. That worked much better. So as the developing world preps for a new cold war, it is devising new ways to stay non-aligned: make the supply chains even more muddled.
It sounds complicated but it isn’t, just a useful bit of tariff engineering called China Plus One. Essentially, it adds a node or two to the supply chain to take advantage of different tariffs. For example, if DC levies that 60% tariff on all Chinese goods and 10% on everyone else, as promised then a Chinese firm partners with an outfit in Thailand to finish a mostly Chinese manufacture: the Chinese firm saves the 60% levy on doing business with the US by going through Thailand, which also benefits through the sort of low-end manufacturing that China is trying to move away from as it shifts the value-add chain. Tariffs remain at a tedious 10% and the region draws closer to Beijing.
It’s a pretty obvious wheeze, so obvious that even a US administration has been able to see through it. President Biden banned imports of internet-connected cars supplied by countries with a “sufficient nexus” to China. Applied broadly or evenly, however, said nexus would cover all of Asia. So, it won’t be applied broadly or evenly.
If Biden’s trade policy has been incoherent, Trump’s transactional and bilateral approach reserves a “right to reassess” America’s commitments to its allies and trading partners. In short, there is no commitment. Practically speaking, it’s pretty damned incoherent as well, but at least it sounds like someone is in charge. For all of Trump’s stump speech bluster, it’s hard to know what he’ll attempt - many of his promises require a completely obedient Congress (not certain) and untested presidential powers that will likely be stymied by lawsuits. Still, for the time being, it would be foolish to bet against Trump is what looks like Trump’s world.
The rub is that this transactional approach won’t do much to bring Southeast Asia into Trump’s world. The region has become a thick web of free trade alliances that is reinforcing enough in nature to keep either the US or China from picking it apart. The danger for both the US economy and the foreign policy is that with Southeast Asia’s China Plus One approach China has both the advantage and sees the opportunity beyond Asia.
This week at the Asia Pacific Economic Cooperation (APEC) summit, China’s President Xi unveiled a $1.3bn investment in a “maritime-land corridor” between Latin American and China - which included a Chinese built deep water port in Peru. The Monroe Doctrine aside, that is really starting to eat into our neighborhood. If its behavior in the South China Sea is anything to go by, Beijing is apt to settle trade disputes with gunboat diplomacy.
In the end, to leave a region that tied to the US economically may be too much for even the most staunch isolationist to ignore.