Economic statecraft is a better option over war in the South China Sea

If the past week in world affairs taught us anything, it would be that a single ship can cause widespread havoc around the globe — volatility in crude prices, to inflation, to a sudden rise in stock markets. Around 12 percent of world trade by volume goes through the Suez Canal, which was blocked by the ship Ever Given. What would be the impact on trade, commerce and society if the blockade was in a part of the world that had 30 percent of world trade move through it? We would find the answer to that question if Chinese vessels amassing at disputed reefs in the South China Sea, such as the 200 vessels on Whitsun reef, become a mainstay of China’s maritime policy.  

To prevent such a crude awakening, the Biden administration should use all tools at its disposal and not lean on forward deployment of forces as the sole course of action. 

The Whitsun reef is claimed by the Philippines, as part of its exclusive economic zone and its air force has been conducting daily aerial patrols over Chinese fishing vessels moored near the disputed reef. Given the sheer contrast in size of navy, air force and military, between the Philippines and China, the Philippines is unmatched to take on the region’s superpower by itself in a conventional battle. A larger navy, air force with advanced technologies would be required to foment a challenge to China’s incursions. Increased U.S. presence can thwart Chinese incursions in the region. However, a troop withdrawal in one part of the world and a redeployment of forces in another part of the world may not bode well for an administration that seeks to “build back better” at home as envisioned in President Biden’s new domestic infrastructure initiative. 

Alternatively, Biden should empower partners in the region by increasing defense and economic cooperation. In the past, the U.S. has acted as a coalition builder in the Middle East, by bringing together a group of likeminded nations with a common adversary. Saudi Arabia and the U.A.E have been part of such groupings and have purchased arms and technology from the United States. While it is a model to emulate to limit forward deployment of forces in Southeast Asia, the defense budgets of Philippines and other countries of the Association of Southeast Asian Nations grouping are quite limited. The entire aggregate military spending for ten nations part of ASEAN was around $40 billion in 2019, while the military budget of Saudi Arabia was $46 billion and China’s in the same year was $180 billion.  Individual nations in Southeast Asia do not have the budgets of the Middle Eastern oil rich countries. Moreover, trade and loans from China have become a bulwark against nations of Southeast Asia taking any concrete action on Chinese incursions into their sovereign waters.  

To successfully position a coalition of regional balancers, the U.S. should address the issue of Southeast Asia’s limited defense budgets and their over dependence on China. In particular, the Biden administration should use tools of economic statecraft and adopt a three pronged approach. 

First, the U.S. should provide an alternative to China’s predatory financing and costly infrastructure projects implemented under the label of the Belt and Road Initiative by partnering with nations of the Quad security grouping. The Biden administration should leverage the newly established International Development Finance Corporation and multilateral financing institutions such as the Asian Development Bank and International Finance Corporation to finance infrastructure and development projects in Southeast Asia. By adopting the model used for vaccine manufacturing for Southeast Asia, in which the U.S. would share technology and Japan would finance, the U.S. can reduce the cost to the exchequer. 

Second, the executive order signed by Biden to review supply chains should extend to prioritizing moving factories out of China and into countries in Southeast Asia, such as Vietnam, Thailand and the Philippines. The Vietnamese and Thai economies successfully capitalized on the U.S.-China trade wars and were quick to absorb factories and industries moving out of China as companies were seeking to hedge the tariffs. Vietnam, Thailand and other countries in the region can absorb the realigning supply chains. 

Third, the Biden administration should rejoin the Trans Pacific Partnership, or TPP. The TPP brought the U.S. into the Asian trade architecture. Without the U.S. in the TPP and with the China-led Regional Comprehensive Economic Partnership being ratified, China’s role as a regional hegemon will be solidified and America’s role in the region reduced to a spectator. Furthermore, it was predicted that if the U.S. market was part of the TPP, Southeast Asian economies would experience doubling of their gross domestic product, with some growing at over 10 percent, such as Vietnam. 

Moving forward, tools of economic statecraft such as aid, supply chains, trade agreements and other carrots to Southeast Asia will provide a more effective long term solution to the South China Sea dispute than the stick of military confrontation. 

Akhil Ramesh is a non-resident Vasey fellow at the Pacific Forum. He has worked with risk consulting firms, think tanks and in the blockchain industry in the United States, India and in the Philippines. His analysis has been published in The South China Morning Post, The Diplomat, Asia Times and the Jerusalem Post. Follow him on Twitter at @akhil_oldsoul