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The Quad and the changing trade order in Asia

By Ota Yasuhiko, Nikkei senior staff writer

 

Which region is the “Quad,” the new framework of U.S., Japan, Australia, and India trying to encircle? It is not China, but Southeast Asia and Taiwan.

 

The Quad countries form an irregular diamond shape on the world map, with the Association of Southeast Asian Nations (ASEAN) countries and Taiwan inside.

 

The joint statement of the September 2021 Quad leaders’ summit held in Washington, D.C., tells the story. The statement mentioned ASEAN four times before COVID-19 and climate change, and even called ASEAN the “center” of the Indo-Pacific.

 

Although the joint statement did not mention Taiwan, so as to not irritate China, it should be read as a declaration that the countries will not cede ground [in ASEAN] to China.

 

The U.S.-China contest to occupy the inside of the Quad diamond has already begun. The Biden administration approached not only the U.K. but also pro-China Germany to dispatch their navies to the South China Sea. After Vice President Harris visited ASEAN countries in August 2021, Chinese Foreign Minister Wang Yi visited each country in September 2021.

 

The U.S. and China are competing for control of supply chains. The global trend of specialized production in the field of advanced technology accelerated in the 2000’s. As a result, Taiwan has become the most important center of semiconductor production in the world.

 

Production does not only take place in Taiwan. Singapore, a trading and financial hub, is also the largest semiconductor producer in Southeast Asia, although not a visible one. Malaysia has a cluster of companies that process semiconductors for electronics.

 

As the Quad joint statement states, the area around the South China Sea is the “center” of supply chains. From the Biden administration’s perspective, a contingency in the Taiwan Strait or South China Sea would herald the collapse of the U.S. tech industry.

 

According to the ASEAN Secretariat’s compilation of foreign direct investment in ASEAN, Japan invested $23.9 billion in 2019, but only $8.5 billion dollars in 2020, a reduction of one-third. The reduction was because of the COVID-19 pandemic and could not be helped.

 

On the other hand, the U.S. increased its investment from $34.6 billion to $34.7 billion during the same period. The combined investment of China and Hong Kong also decreased, albeit slightly, from $21.8 billion to $19.6 billion. The U.S. and China are competing through direct investment, even in the midst of adversity.

 

The Trans-Pacific Partnership (TPP) was to be an economic union of countries around the Pacific Ocean. In reality, most ASEAN countries and Taiwan do not participate in the TPP. Given that Washington has its plate full with many important measures, it is unlikely that the Biden administration will be able to obtain Congressional approval for trade negotiations. The U.S. will not be able to rejoin the TPP.

 

As long as some countries are not participating in the TPP, the free trade accord will not become the basis for division of production across the Pacific Rim. The Biden administration has no choice but to give up on a trade order based on free trade and to lock in ASEAN and Taiwan by other means, which in this case is reasons of security.

 

This was the intent of the leaders of Japan, the U.S., Australia and India in making a special announcement of the “Quad Principles” on technology design, in addition to the joint statement. The countries decided, in the name of democracy and respect for human rights, to collaborate on the design, development, management and usage of advanced technology. These values form a barrier that China cannot cross at present.

 

The creation of a new trade order begins from the Quad, and companies are caught up in the big tide of change.

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