Adapting to Covid-19: Indonesia, the United States, and the Indo-Pacific #3: Covid-19’s Impact on Regional Trade and Security

April 20, 2021 (US) | April 21, 2021 (Asia)

Session 3 of the “Adapting to COVID-19: Indonesia, the United States, and the Indo-Pacific”
Virtual Forum Series

Featuring

Dr. Amy Searight
Senior Associate for Asia
Center for Strategic and International Studies (Washington, DC)

Dr. Sophal Ear
Associate Professor, Diplomacy and World Affairs
Occidental College

Mr. Marc Mealy
Senior Vice President-Policy
US-ASEAN Business Council

Dr. Fajar Hirawan
Centre for Strategic and International Studies (Indonesia)

Key Findings

On April 20, 2021, with support from the US Embassy in Jakarta and in cooperation with the Centre for Strategic and International Studies (CSIS) Indonesia, the Pacific Forum hosted “COVID-19’s Impact on Regional Trade and Security,” with 114 participants from government, private sector, academia, and other non-governmental organizations. This was the third session of the virtual forum series “Adapting to COVID-19: Indonesia, the United States, and the Indo-Pacific.”

Dr. Amy Searight, Senior Associate for Asia, Center for Strategic and International Studies (Washington, DC); Dr. Sophal Ear, Associate Professor, Diplomacy and World Affairs, Occidental College; Mr. Marc Mealy, Senior Vice President-Policy at the US-ASEAN Business Council; and Dr. Fajar Hirawan, Centre for Strategic and International Studies (Indonesia), examined intersections between regional trade and security in the recovery from the COVID-19 pandemic. Key findings from this meeting are described below.

ASEAN in the Biden Era

To what extent has the pandemic shifted geopolitical trends? China continues to face questions over its initial handling of the pandemic regarding issues of transparency as well as shutting down internal questioning and reporting. To counter this, it initiated “mask diplomacy,” sending masks, doctors, and PPE to affected nations. And in contrast to the US, China brought COVID-19 under control relatively swiftly.

Nevertheless, the juxtaposition of China’s soft power attempts to the inadequate US responses ultimately did little to change broad regional sentiments. Various Southeast Asia-focused surveys, such as the ISEAS-Yusof Ishak Institute annual survey, have yielded consistent results; China is viewed overwhelmingly as the dominant economic and political player in the region, yet mistrust has risen since 2019. Furthermore, China’s use of vaccines as leverage against other countries is anathema to the established international process. If one looks at Chinese behavior, a pattern begins to emerge: Beijing is supplying vaccines to those countries in Southeast Asia it seeks to influence. According to a Washington-based Center for Strategic and International Studies poll of Southeast Asia, 46.3% of respondents view the country as revisionist.

Although ASEAN has been persistent in pledges of neutrality, America’s domestic failure to contain the early outbreak of COVID has not eroded positive perceptions of the nation in Southeast Asia, which have risen since Joe Biden took office in January 2021. Under Biden’s predecessor, Donald Trump, US engagement with Southeast Asia decreased. There are expectations this will be reversed under Biden, yet the question is how much of Washington’s leadership in the Indo-Pacific can be revived. The promotion of democratic norms and elevating development agendas will be central to the Biden administration. In terms of China policy, the new administration is expected to adopt a more strategic stance mixed with targeted areas of cooperation. Such efforts, however, are sure to take a lower priority than the significant domestic issues currently facing the country.

Economic statecraft remains a void within Biden’s foreign policy architecture that, if filled, could support its efforts at multilateral diplomacy. The question of real economic and trade engagement lingers as US commitment to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and Regional Comprehensive Economic Partnership (RCEP) sit in limbo. Regardless of the avenues pursued by the Biden administration, multipolarity is here to stay. Southeast Asia has made it clear that it prefers an environment in which working with a variety of partners creates productive relationships.

The New Normal in a Post-COVID World

COVID-19’s effects on economies extend well beyond vaccine diplomacy, however, even though they differ by industry. It has negatively impacted Singapore’s trade volume while devastating countries reliant on tourism, such as Cambodia and Thailand. Other issues, including a spike in air freight costs, transport bottlenecks, and travel restrictions, have exacerbated disparities. Further efforts need to be made to prevent future pandemics. The regulations of wet markets and food safety standards need to be revised while areas such as the vulnerability of migrant workers must be examined.

In the near term, steps that could be taken to assist in economic recovery include improving effective containment measures, expediting the movement of key agricultural products, and removing import/export barriers. Financial transfers funneled into crucial industries such as the agricultural sector will also be of vital importance. Long-term frontiers include expanding and extending infrastructure in an inclusive manner, increasing cooperation to improve knowledge and outcomes, and increased engagement between private individuals and governments.

COVID-19 has had a substantial impact on regional trade. Many governments have focused on the macroeconomic side, including economic resilience measures and investing in a sustainable recovery process. While such efforts are important, domestic economic policy will ultimately influence international trade competitiveness. Policies that build on human capital and talent and promote consumer and business access to new technology are vital.

While stakeholders focus on vaccine distribution and economic recovery, governments should identify and incorporate an understanding of our new normal, especially in international business. In the post-COVID world, we see a trend in which global companies place a higher value on the resilience of supply chains and sourcing. How governments develop capabilities to deal with economic shocks like COVID will become a new competitive advantage. Indonesia, therefore, has challenges but also economic opportunities, as ASEAN member states have significant experience in recovering from economic shocks. Societies should diagnose which sectors were hardest hit by COVID to highlight how recovery should be guided and identify the reforms needed to transform them into sources of resilience. Vitally, the discourse of individual nations must take the economic landscape of Southeast Asia as a whole into consideration.

Post-COVID Economic Confidence in Indonesia and Beyond

Indonesia’s economic reality is impacted by the frameworks governing its trade and other economic activities, and such frameworks are evolving. Indonesia’s membership in RCEP and its interest in joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) will shape its post-pandemic economic recovery strategies alongside emerging frameworks on digital economy. Although the US is not a member of these agreements, there are short-to-medium-term solutions it can pursue to forge a more robust economic partnership with Indonesia. Possible steps include appointing US ambassadors to various ASEAN organizations and proposing sector-specific economic agreements with countries like Indonesia. Such arrangements must consider how law and policy can be approached to ensure that innovation is fostered while consumer rights are protected.

COVID-19 has impacted all stakeholders and sectors of the ASEAN economy, especially in tourism, along with weakening consumer confidence. Pessimism remains a fundamental problem, although in both China and the US the business confidence index has started to become positive as governments ease lockdowns and implement new policies.

The US, EU, and China remain top investors in ASEAN, accounting for more than 40% of total investment in the region. Intra-state investment in ASEAN is also significant, hovering around 22% of total investment in 2019. Investment patterns signal that ASEAN could become a new production center for the global supply chain, a possibility which could be realized in a post-pandemic world.

Ultimately, major countries and ASEAN have just begun their recovery phase. Uncertainty has to be anticipated, and consistent policy must be established to combat this. ICT sector growth has been significant during the pandemic and has become an essential sector to promote innovation. Finally, re-industrialization, connectivity, and innovation are key development priorities for the ASEAN region and could serve as a baseline for future economic cooperation within the bloc.

About this Series

The U.S.-Indonesia bilateral relationship is one of substantial depth and has evolved over time to reflect the changing priorities of each country. The U.S. and Indonesia entered into a Comprehensive Partnership in 2010 that initiated consistent high-level engagement on various issues spanning democracy and civil society, education, security, resilience, and mitigation. The relationship was further upgraded in 2015 with the signing of the US-Indonesia Strategic Partnership, which expanded the cooperation into various issues that have regional and global significance.

At the turn of a new decade, our countries are both at a crossroads: confronting a highly volatile political, economic, and security environment in the midst of an international health crisis.

To this end, Pacific Forum is proud to launch the virtual series “Adapting to COVID-19: Indonesia, the United States and the Indo-Pacific,” with support from the US Embassy in Jakarta. Pacific Forum will collaborate with the Centre for Strategic and International Studies Indonesia (CSIS Indonesia) throughout this series.

The nine-part virtual series will address broad, cross-cutting issues that impact both countries: emerging security issues, COVID-19, regional and bilateral trade and investment, and democracy and civil society. It will feature American and Indonesian experts with diverse yet complementary backgrounds to examine the trajectory of US-Indonesia relations in the new normal.

Latar Belakang

Hubungan bilateral AS-Indonesia adalah hubungan yang mendalam dan telah berevolusi seiring waktu untuk merefleksikan perubahan prioritas masing-masing negara. AS dan Indonesia memasuki Kemitraan Komprehensif (Comprehensive Partnership) pada tahun 2010 yang memulai kerja sama tingkat tinggi secara konsisten di berbagai isu yang mencakup demokrasi dan masyarakat sipil, pendidikan, keamanan, ketahanan, dan mitigasi. Hubungan ini ditingkatkan lebih lanjut pada tahun 2015 melalui penandatanganan Kerja Sama Strategis (Strategic Partnership) AS-Indonesia, yang memperluas kerja sama ini ke berbagai isu yang memiliki signifikansi regional dan global.

Memasuki dekade baru ini, kedua negara kita ada di persimpangan jalan, menghadapi lingkungan politik, ekonomi, dan keamanan yang tidak stabil di tengah-tengah sebuah krisis kesehatan internasional.

Maka dari itu, Pacific Forum dengan bangga meluncurkan seri virtual “Beradaptasi dengan COVID-19: Indonesia, Amerika Serikat, dan Wilayah Indo-Pasifik”, dengan dukungan dari Kedutaan Besar AS di Jakarta. Pacific Forum akan bekerja sama dengan Centre for Strategic and International Studies (CSIS) sepanjang seri virtual ini.

Seri virtual sembilan-bagian ini akan menjawab isu-isu yang luas yang berdampak ke kedua negara: isu-isu keamanan yang muncul, COVID-19, perdagangan dan investasi regional dan bilateral, serta demokrasi dan masyarakat sipil. Seri ini akan melibatkan pakar-pakar Amerika dan Indonesia dengan latar belakang yang beragam namun saling melengkapi untuk mengupas alur hubungan AS-Indonesia di dalam new normal.