More than two years into the unprecedented COVID-19 pandemic, the ten member states of the Association of Southeast Asian Nations (ASEAN) continue to manage the fallout from the crisis. The pandemic has challenged and changed ASEAN's role by elevating health in the association's regional economic integration strategies. However, ASEAN must implement such strategic changes amid the intensifying U.S.-China rivalry and the ongoing Russia-Ukraine war. The geopolitical competition associated with this rivalry and armed conflict threatens to undermine what ASEAN can achieve in post-pandemic regional economic recovery and resilience.

ASEAN, the Pandemic, and Regional Economic Integration

Originally established in 1967 to foster regional economic, security, and cultural cooperation, ASEAN has "played a central role in Asian economic integration." The pandemic has caused significant damage to economies in Southeast Asia. The Asian Development Bank (ADB) found that COVID-19—in 2021 alone—wiped out 9.3 million jobs and pushed 4.7 million people in Southeast Asia into extreme poverty. The ADB has projected that the ongoing omicron wave will reduce the region's gross domestic product (GDP) by 0.8 percentage points in 2022 and depress output to more than 10 percent below the 2020 no-COVID baseline scenario.

In 2021, 9.3 million people lost their jobs and 4.7 million people were pushed into extreme poverty across Southeast Asia

The scale of the economic damage caused by COVID-19 motivated ASEAN to change its approach to regional economic integration. The pandemic galvanized collective action by ASEAN members to design and undertake a region-wide economic recovery plan. At the ASEAN summit in 2020, the association's members adopted the ASEAN Comprehensive Recovery Framework (ACRF) and Implementation Plan as an exit strategy from the devastating consequences of COVID-19.

The ACRF consists of five broad strategies: improving health systems, strengthening human security, maximizing the potential of intra-ASEAN and broader economic integration, accelerating inclusive digital transformation, and increasing the region's resilience and sustainability. The Implementation Plan contains the specific deliverables and timelines for each strategy, as well as the bodies responsible for completing the deliverables.

The ACRF reveals how the pandemic shapes the elements of the region-wide recovery and integration effort. COVID-19 raised awareness within ASEAN of how interconnected economic growth and integration are with health and human security. ASEAN governments see health and economic matters as inseparable. As a result, the ACRF focuses on bolstering health systems and human security in order to strengthen workforces within ASEAN members, and to advance regional economic integration.

COVID-19 has also prompted ASEAN members to embrace more rapid and comprehensive economic digitization. Digital technologies have long been ingrained in regional supply chains and business operations (for example, through e-commerce and online customs clearances), but the pandemic has boosted their significance among ASEAN members and across the association's regional economic integration efforts. During the pandemic, digital technologies facilitated important economic and business activities, including work-from-home schemes and teleconferencing. Consequently, the ACRF reflects ASEAN's need for more economic digitalization.

The pandemic also forced ASEAN members to understand that national and regional economic growth and development must be able to endure and recover from crises and disasters. The ACRF focuses on enhancing sustainability and resilience as part of ASEAN's post-pandemic regional economic integration plans.

The U.S.-China Rivalry and ASEAN's Post-Pandemic Strategy

ASEAN's post-COVID-19 strategies for recovery and regional integration face two major challenges from beyond the association—the intensifying U.S.-China competition and the global consequences of the Russia-Ukraine war.

President Joe Biden has kept in place U.S. tariffs on about $350 billion worth of Chinese products imposed by the prior administration. These trade barriers have caused supply-chain disruptions by incentivizing companies to relocate from China to Southeast Asia to take advantage of lower operating costs. The economies of ASEAN members are receiving the immediate windfall of such supply-chain reconfiguration, but the U.S.-China trade war will adversely affect them in the long run.

 

The escalating U.S.-China rivalry could set back implementation of the ACRF's strategy of leveraging economic digitalization

For starters, the U.S.-China trade dispute has caused uncertainties across the world economy, discouraging international investment. In this unsettled environment, investors often take a wait-and-see approach and delay new investments. The Regional Comprehensive Economic Partnership (RCEP)—a fifteen-member trade bloc among ASEAN members, Australia, China, Japan, New Zealand, and South Korea—provides some stability. But the bilateral economic spat in the escalating U.S.-China geopolitical competition will adversely affect the ACRF's strategy to increase ASEAN economic integration and its members' participation in international trade and investment flows.

Further, the U.S. government's bans on Chinese technology companies and China's efforts to achieve more technological autonomy are accelerating technological bifurcation in the regional and global contexts. For example, ASEAN members are adopting different 5G systems and standards, which will make ASEAN's objective of a region-wide, integrated digital economy more challenging to achieve. Harmonizing technological standards regionally will be daunting as long as Washington and Beijing are competing for technological primacy. The escalating U.S.-China rivalry could set back implementation of the ACRF's strategy of leveraging economic digitalization as part of ASEAN's post-pandemic recovery and economic integration efforts.

The Russia-Ukraine War and ASEAN's Economic Future

Right now, the Russia-Ukraine war has a limited impact on Southeast Asia's overall trade, economic growth, and prospects for more regional integration. Neither Russia nor Ukraine are major trading and investment partners for ASEAN members. Even so, the war and the severe economic and financial sanctions imposed on Russia by the United States and its allies have troubling implications for national and regional economic activities in Southeast Asia.

One immediate and potentially long-term effect is increased prices for agricultural goods, energy supplies, and other commodities exported by Ukraine and Russia. According to a March 2022 report from the Organization for Economic Co-operation and Development, Ukraine and Russia account for about 30 percent of global exports of wheat; 20 percent of corn, mineral fertilizers, and natural gas; and 11 percent of oil.

The war's disruption of Ukrainian and Russian exports of these products is causing price inflation for food and energy supplies, which will adversely affect public and private-sector budgets in ASEAN countries. In particular, food and energy costs exceed 40 percent of the consumer-price-index baskets for goods and services purchased in the Philippines, Thailand, and Vietnam. Faced with rising prices, ASEAN members might prioritize supporting their domestic consumers and economies through, among other things, subsidies to lessen the effect of inflation. Such measures could mean fewer resources to allocate for post-pandemic national and regional recovery and resilience initiatives, including improving health systems.

Additionally, Ukraine produces about half the global supply of a neon gas used in microchip production. The war has halted Ukrainian exports of this product, which disrupts global supply chains for various microchip-dependent industries, including robotics, electronics, and electrical appliances. This disruption undermines ASEAN's post-pandemic recovery and economic integration plans by impeding the ACRF's strategy for increasing economic digitalization within ASEAN.

ASEAN after COVID-19

The pandemic's effect on national economies and economic integration in Southeast Asia has forced ASEAN to make strategic changes in its efforts to advance trade, investment, and economic growth among its members. These changes include elevating the importance of health-system strengthening and the need for greater human security within the association's mandate to support regional economic integration.

However, ASEAN's desire to recover from the pandemic's fallout and build resilience for future crises faces strong headwinds from developments unrelated to COVID-19 and beyond its control, including the escalating U.S.-China rivalry and the Russia-Ukraine war. Whether these and future geopolitical challenges threaten the health-focused aspects of ASEAN's new strategic direction remains to be seen.