Podcast: Tariff Fallout Belies Asia's Geoeconomic Agenda

Former APEC and ADB official assesses the coming Indo-Pacific geoeconomic agenda out to 2026 and the regional and global stakes.

INTRODUCTION

ASEAN Wonk: Welcome to the ASEAN Wonk Podcast, where we bring you expert insights and regional perspectives on Southeast Asia and Indo-Pacific geopolitics and geoeconomics. I'm your host Dr. Prashanth Parameswaran. If you haven't already, do subscribe to our ASEAN Wonk platform at www.aseanwonk.com so you don't miss all of our posts.

Our guest today is Dr. Denis Hew, who spent over a decade as the director of the research arm of the Asia-Pacific Economic Cooperation forum (APEC) and also spent time before that in several other key economic institutions including the Asian Development Bank (ADB). We will start a conversation talking about the state of the regional economic architecture. Be sure to tune in to the full episode where we go through a range of other subjects, including Indo-Pacific geoeconomics, growth trajectories and what the regional, minilateral and multilateral landscape will look like into 2026.

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REGIONAL GEOECONOMIC ARCHITECTURE

ASEAN Wonk: So welcome to the podcast Denis and let's get started. I wanted to kick off with where we are in terms of the regional economic architecture. This is an architecture which, as you know having been in several of these leading institutions, went through a series of waves. In the nineties, for example, we had APEC come to the fore and there was some excitement about institutional innovation. If we skip over a few decades to the present, there's a lot more conversation about minilaterals, sectoral deals and smaller groupings. But at the same time, we still have ASEAN coming up with digital initiatives that are regionwide. In APEC, there are still efforts to try to revive notions like the Free Trade Area of the Asia-Pacific (FTAAP). How do you assess the role of regional economic multilateralism within this geoeconomic environment we’re in? Is there perhaps a little bit too much doom on the multilateral economic architecture than is warranted?

Dr. Denis Hew: Well, thanks for having me. I'm a pessimist at heart, but I think I can maybe share a little bit of optimism about the economic and trade architecture. As you mentioned, in the last couple of decades, in Southeast Asia and East Asia, we've seen closer economic and trade integration among these regions. And much of that has also been driven by the establishment of global supply chains, particularly in manufacturing, electronics, semiconductors. And, of course, within ASEAN, it's been forging closer economic integration. It's got this big project, the ASEAN Economic Community (ASEAN), which was established more than twenty years ago, and they're moving forward towards their next milestone post-2025.

But we know the world's changed quite a bit, partly because of rising U.S.-China tensions, and we're beginning to see that kind of fragmentation in the global economy. There's also a lot of disappointment at the multilateral trading system at the World Trade Organization. There haven’t been many key major deliverables. The dispute settlement mechanism is still pretty stuck and not resolved. And a lot of the economic trade agreements have been protracted in trying to reach any conclusions.

So in terms of the trend as you're moving forward, you see, as you mentioned, bilaterals and economic kinds of minilaterals. A good example is DEPA, the Digital Economy Partnership Agreement (DEPA). So you've got a couple of like-minded countries which want to move forward. If they are stuck at WTO with a quest for an e-commerce agreement, and we want to move forward in terms of the digital economy, digital trade, one of the ways is to come together and try to form a partnership agreement among themselves.

The other big trend, of course, is that we're we're seeing a proliferation of free trade agreements, both bilateral as well as regional. And, of course, within this region, the big ones are RCEP, the Regional Comprehensive Economic Partnership Agreement (RCEP), which includes ASEAN and its and its five major trading partners, including China. And, of course, beyond in the Asia Pacific region, you've got the CPTPP, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. I believe it was a bit of a mouthful, but it's a reincarnation of TPP as we know, and that excludes the US, but includes some of the big and middle-sized economies. I guess the biggest challenge that we're facing here in terms of the economic architecture, particularly from the ASEAN perspective, is that ASEAN has always been known as for its strategic neutrality. It doesn't want to choose a side between US and China. We know that the US has a long presence in terms of foreign investments and technology transfers in this region. But we know that if you look at the supply chains that have been established, increasingly we see that a lot of those supply chains are linked to China. So, essentially, ASEAN member countries don't want to choose a side. What they want to do is do business with both countries. And that's one of the biggest challenges that they face right now.

“NEXT-GENERATION” GEOECONOMIC ISSUES

ASEAN Wonk: I'm glad you mentioned DEPA and some of these other sectoral, minilateral agreements because it does seem like these agreements are proliferating. You're you're seeing some in the digital space; you're seeing some on the green economy, for example. So that's a very interesting trend. One of the interesting conversations we're seeing as well is how we think about updating some of these existing agreements. So within APEC for example, they've characterized this as next-generation trade and investment issues. Things like sustainability and inclusivity. They were always there, but perhaps twenty or thirty years ago, they were not as much front and center. APEC released a report in the middle of last year, and they essentially mentioned that while there are a whole host of these next-generation issues, there hasn't really been an endorsement around areas of focus. There are still differences in views in areas like state owned enterprises, for example. How do you think about the areas that may gain traction within this basket of next generation issues?

Dr. Denis Hew: Yeah. Within APEC and also ASEAN, they've been talking about a lot of these next-generation trade and investment issues. We talk about sustainability, impact of trade from climate change and also digital trade. One of the biggest problems in APEC is that decision-making is based on consensus and because of the geopolitics of tensions between the US and China, we can't get a lot of things done. Because if you put on the table a major project looking at, say, the green economy, for example, for different reasons — nothing to do with the project itself — it could just be blocked. So over the last couple of years, we're not seeing a lot of traction in terms of building capacity and working together. And that's one of the biggest challenges. Some of the big topics that they've talked a lot about in terms of next-generation is, of course, sustainability. Increasingly, also the concerns of rising income inequality. And, in the past, we had big meetings being canceled because of demonstrations because of inequality and there's been an increased focus looking at the formulation of much more inclusive policies — social inclusion, financial inclusion, economic inclusion. So a lot of these things are being discussed.

But the biggest challenge, of course, is how do you get that implemented? And within APEC, you've got twenty one members. So getting a consensus of getting things done has become a lot harder. That's one of the reasons why you're seeing the rise of many of these minilaterals and sector-specific partnership agreements. They’re taking them out because they're stuck at WTO. They could be stuck in APEC or even ASEAN. A couple of economies coming together and moving forward, whether it's in terms of trade liberalization or opening up your markets to get things moving. And I don't see that trend subsiding anytime soon, and that's one of the biggest concerns. It's a concern partly because I'm a big supporter of the multilateral trading system. So the problem with a breakdown with the WTO is that the less developed countries will be the biggest losers because it's harder for them to do a future agreement with another country. We hope that a multilateral trading system can continue to work and that we might hopefully see some deliverables at the WTO this year.

MINILATERAL-MULTILATERAL LINKAGES

ASEAN Wonk: One of the things I mentioned earlier was this notion of the Free Trade Area of the Asia Pacific (FTAAP), where you'd see these trade agreements eventually coming together. As we think smaller with these minilateral groupings and sectoral areas, what does the grand vision actually look like? Maybe there is one; maybe not. But how do we think about the connection between these sectoral and minilateral agreements and what the broader regional vision is for everyone that's trying to work towards some of these goals?

Dr. Denis Hew: Well when it comes to minilaterals, a lot of them are WTO consistent. So the idea — or, I mean, grand plan, if you want to call it that — is that they can get an agreement done, say, in digital trade, and then if that expands, you have a large membership with more countries. DEPA is an example. It had Chile, New Zealand, Singapore; and it’s open for more membership. And eventually, whatever agreement that they make could be taken back to the WTO, and you can restart negotiations, whether it's e-commerce or other things. So in a way, it acts as a bit of a catalyst. Now FTAAP is pretty much a grand plan, a really grand plan. I've seen that being discussed at APEC for years and years. Now the thing about FTAAP is that it's kind of a mega free trade agreement. And right at this time, I'm not too sure whether there's an appetite for yet another big regional free trade agreement. But the logic is that, from the economist's point of view, if you want to reduce trade diversion, that means that you're using a supplier with less efficiency or compared to a more efficient one, then the more members you have in a free trade agreement, the better it is. So that's why you've got an FTA. RCEP is the largest free trade agreement right now in the world. So you have these big features. You have less trade diversion, and you can facilitate an expansion of global supply chains or global value chains. So that's the general idea. So you've got these minilaterals working on one end, and you've got this big reach for the trade agreements. And hopefully, there's some kind of convergence among them. And I think that's the general sense that they have.

The biggest concern, of course, is you don't get convergence. You get this whole mixed of different kinds of trade rules, rules of origin. And in that sense, the biggest losers would be small companies. Big companies, big multinationals, no sweat for them because they've got big legal departments that can sort out the different kinds of trade rules, rules of origin, and work out which is best for them in terms of which bilateral or regional trade agreement. If you're a small- and medium-sized enterprise trying to expand your market, that's a challenge because you don't have the resources. So in that sense, it's up to governments to help them to go through all the different kinds of free trade agreements, sectoral agreements out there, and see what's best for them. Which countries they want to expand to: is it Asia? Is it Europe? Well, then you take this. Then I think you should sign up for this trade agreement rather than that one. So that's what's happening, I think, right now.

INDO-PACIFIC GEOPOLITICS-GEOECONOMICS DIVIDE

ASEAN Wonk: The other question to my mind is this notion of the Indo-Pacific and how that fits in or does not fit in with the geoeconomic picture. I think if you look at it geopolitically, there's appeal to this notion of the Indo-Pacific. You have a larger role for India, the maritime connections between the Indian Ocean and the Pacific Ocean, and so on and so forth. And you have this proliferation of Indo-Pacific strategies. But if you look at the geoeconomic picture, it used to be that this was largely around the concept of the Asia-Pacific, and APEC was one manifestation of that back in the nineties. We've obviously seen some initiatives like the Indo-Pacific Economic Framework under the previous Biden administration or the ASEAN Outlook on the Indo-Pacific trying to connect the geopolitical and geoeconomic, with United Nations Sustainable Development Goals (SDGs) in there for example. Still, when I'm in conferences on geopolitics and then I switch over to ones on geoeconomic engagements, it seems like the Indo Pacific is a lot more of a geopolitical connector than it is a geoeconomic connector. How do you see the pace of adoption on the Indo-Pacific and where you see that headed in the geoeconomic domain?

Dr. Denis Hew: Well, it would have took off if the Indo-Pacific Economic Framework (IPEF) really was concluded because that would be a nice link up between IPEF and the more strategic elements of the Indo Pacific strategy. We know that different countries have different Indo-Pacific strategies. You talked about that too, and ASEAN has its own ASEAN Outlook for the Indo-Pacific, which tries to find a way to not pick a side again. So it's got to get buy in from the US, but it's got to get buy in from China too. China is a partner of the AOIP. And that framework has a lot of potential, but right now it's not being implemented very well. I mean, it covers economic cooperation, maritime connectivity, supply chain connectivity. So on paper, it looks great, but you're right here that there's a bit of a disconnect.

More worryingly, we know what happened in 2023. There are four pillars to IPEF, and the most important pillar, which is the trade pillar, didn't work out. And so right now you've got three out of four kind of working. We'll have to wait and see what happens with President Trump, but it was an important way for the US to continue to engage regionally with the Asia Pacific region. And that would have fit nicely with the more geopolitical part of that strategy. So that's not there. So I think in that sense, you will continue to have that disconnect until the US can make some major decision or whether they want to continue with the economic part of the Indo-Pacific. And that leads to a bit of a vacuum.

In a sense, that's where China comes in. China is a member of RCEP. That's a big free trade agreement that's already being implemented since 2022. It's got an easy to use rules of origin that does facilitate regional content, global supply chains. So it's got great potential here to strengthen the existing supply chains. But you are going against this tide of onshoring, nearshoring from the US. So the challenge there is that you've got a lot of pressure from the US to force multinationals and other companies to move more of their operations to the US or near the US. And at the same time, you've got very established global supply chains that are linked to China in Southeast Asia and East Asia. So the worst case scenario is you are beginning to see a bit of that decoupling in terms of supply chains where there might be new supply chains which are exclusively linked to China through RCEP, and that could be a scenario that you’re seeing. It's not ideal in my personal view.

CHINA GEOECONOMIC “WINDOW OF OPPORTUNITY” PERCEPTION

ASEAN Wonk: You mentioned China. And as you said, there is a lot of attention on US tariff policy and the trade policy side. I'm quite struck by China's posture in all of this. We are seeing Chinese officials publicize things like a zero tariff policy towards certain countries and certain regions. You're going to see China host APEC in 2026. And, of course, China has come up with economic institutions of its own — the Belt and Road Initiative, for example, the AIIB, which, you know, has actually taken off from when we saw early US opposition. In talking to some Chinese interlocutors, I do sense that China believes there is a window of opportunity to position itself as being more proactive on trade and doing a little bit more geoeconomically and regionally in spite of the fact that it's got limitations of its own. How do you see China's inroads in this space and where do you think China's headed within this conversation in the next year or two?

Dr. Denis Hew: I think…

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