The Debate | Opinion

How American Firms Give the US an Edge Over China in Southeast Asia

Beijing is an economic power in most of the region, but it can’t compete with the long-established U.S. business presence.

How American Firms Give the US an Edge Over China in Southeast Asia
Credit: Depositphotos

In its recently announced U.S. National Security Strategy (NSS), the Biden administration has underlined its strategic interests in the Indo-Pacific region, especially its desire to blunt China’s rising assertiveness. In the same vein, the strategy emphasizes the “centrality” of Southeast Asian countries in building a “Free and Open Indo-Pacific.” Over the past few years, given the intensifying Sino-American rivalry in both the military and economic realms, Southeast Asia has become a “ground-zero” of strategic competition between Beijing and Washington. Both sides have launched geo-economic initiatives aimed at supporting their strategic goals in Southeast Asia, and Beijing has so far arguably been the winner. Nevertheless, the United States still has an edge over China in the region, thanks to the power of the U.S. private sector.

American firms are one of the main sources of Washington’s global economic power, and they are globally influential in almost every sector. According to the newest “Global 2000” list from Forbes, among the top 10 largest firms in the world by revenue, five are from the United States. Moreover, in strategic sectors such as technology, finance, energy, and telecommunications, private U.S. firms also dominate the list. Apparently, Washington is recognizes the necessity of engaging private actors in any of its strategies. For example, at the G-7 Summit in June, the U.S. officially launched the “Partnership for Global Infrastructure,” which aims to mobilize $500 billion for global infrastructure investments, and the private sector occupies a key role in this plan.

On top of that, U.S. President Joe Biden has announced two remarkable initiatives to strengthen key companies in strategic sectors, the CHIPS and Science Act and the National Biotechnology and Biomanufacturing Initiative. Though differing in their scope and focus, these initiatives have three primary goals: reinforcing the global power of American firms; countering threats raised by Chinese companies; and protecting U.S. strategic sectors. Combined with the emphasis on fostering economic cooperation via institutions like the Indo-Pacific Economic Framework or Asia-Pacific Economic Cooperation in the latest NSS, these move imply that the U.S. intends to leverage the power of its private sector in geopolitical competition with China.

Zooming in on Southeast Asia, the influence of U.S. firms gives Washington similar leverage in comparison to China. At first glance, although it lags behind China in terms of total trade volume with the region, the U.S. is the largest investor in the 10 members of the Association of Southeast Asian Nations (ASEAN). More importantly, despite its spectacular growth in its FDI flows to Southeast Asia, China is not regarded as a trustworthy investor by countries in the region, compared to the U.S. Due to the potential risks associated with Chinese investors, mostly through its Belt and Road Initiative (BRI) infrastructure scheme, Southeast Asian countries have been increasingly skeptical about investment from China, as evidenced by the cancellation or withdrawal of BRI-funded projects in countries like Malaysia, Indonesia, and the Philippines.

More evidence of the region’s growing skepticism toward China was offered by the 2022 survey conducted by Singapore’s ISEAS-Yusof Ishak Institute. The survey of ASEAN policy- and opinion-makers found that although China is regarded as the most politically and economically influential country in the region, it is not the most welcome great power. Instead, it is the U.S. that enjoys a higher level of trust among regional states. The survey also illustrates that ASEAN countries demonstrate a higher level of confidence in the U.S. as a provider of leadership in championing the global free trade agenda. These dynamics are favorable to the future U.S. economic presence in the region and suggest that the U.S. could economically out-compete China in the region, provided that it can utilize all of its advantages. And American firms will form the linchpin in maintaining and extending the U.S. economic influence in Southeast Asia.

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Besides a favorable regional landscape, American firms themselves have more advantages compared to Chinese ones. Firstly, U.S. firms are leading partners of Southeast Asian nations in many key strategic sectors. Among the five largest defense contractors in the region, the largest and the fifth largest are American firms (Lockheed Martin Cooperation and L3Harris Technologies Inc., in that order), and no Chinese company is in the list. This grants the U.S. substantial power in shaping the regional defense market, which is crucial in maintaining its regional preeminence.

Secondly, American firms, thanks to their cutting-edge technologies and innovation, will enable the U.S. to dominate the realm of international technical standards. Standardization is a crucial process for the digital, high-tech-driven global economy, as it establishes necessary norms for the global marketplace; it ensures common practices, quality control, and other critical activities that are fundamental to the economic activities. Therefore, the long-standing domination of the U.S. in standard-setting gives it an edge over China, not only on a regional but also on a global scale.

Specifically, thanks to their presence in Southeast Asia and the welcoming attitude of the countries in the region, U.S. firms are the main driver in the regional technical standardization through channels including (but not limited to) technological transfer, capacity building, or patent/intellectual property procurement. Despite the fact that China has been attempting to promote a China-centric standard system, it is still lagging behind the U.S. in this domain owing to its less influential private actors, particularly in Southeast Asia. In this respect, American firms are giving Washington a two-pronged economic instrument with which to maintain its strategic advantage against China in the region.

Furthermore, this wide-reaching and powerful network of firms in Southeast Asia offers the U.S. spillover advantages in the security realm. It is not difficult to see that because U.S. firms are among the largest defense contractors for governments in the region, that the U.S. government is explicitly the main security provider in Southeast Asia. Not only does Washington have better expertise and technologies in the security sector compared to China, but also it enjoys a more favorable landscape, given the rising security concerns related to BRI-funded projects.

Through these means, the U.S. has reinforced its indispensable role in regional security, and China remains a step behind as a security partner of Southeast Asian states, regardless of its growing political and economic influence. In addition to this, as a larger and more trustworthy investor than China, the U.S. can mobilize resources from its firms to invest more in building a high-quality infrastructure system without triggering backlash within the region, which is foundational for the US to create an “economic-security spillover.”

The strong, U.S.-friendly infrastructure systems, both hard and soft, also create conducive conditions for the U.S. to foster its security cooperation with potential partners. If it is able successfully to utilize the network of firms to maintain and reinforce its competitiveness in the region, the U.S. will sit at the core of the regional security architecture, making it all the more difficult for China to replace.

China grown spectacularly in recent decades, and it is unambiguously the global peer-competitor of the United States. This is also the case in Southeast Asia, where the geopolitical rivalry between these two great powers is heating up on almost every front. Notwithstanding its substantial development, China still faces disadvantages in the region, due to its lack of a well-established network of innovative companies with cutting-edge, sophisticated key technologies. In this respect, if the U.S. can harness this source of power, it would be able to ensure its continuing dominance in the face of China’s challenge .