by R.M. Michael Tene

A superpower such as the United States of America (US) is defined by its overwhelming material powers, particularly its military and economic powers. An economic superpower refers primarily to a country’s superior capacities in capital accumulation and in either production or consumption of goods and services or both.

In a rather simplistic depiction, the US although it has tremendous production capacities, its economic superpower is more associated with its status as the number one capital and goods and services market in the world. The US market is a major export destination for almost all countries in the rest of the world. Other countries such as Japan and China are also referred as economic superpowers, however both are more known as “the factory of the world”. Their economic superpower status is achieved more from their production and export capacities.

From power perspective, countries with enormous domestic consumption and market capacities have more leverage compared to countries relying more on their production and export capacities. The automotive and semi-conductor trade wars between US and Japan in the 1990s; the recent and ongoing trade wars between US-China, US-Canada, US-Mexico as well as between China and Australia are examples of how exporting countries are in a relatively weak position compared to their major export markets.

The imposition of so called “reciprocal” tariffs by the US to all its trading partners is a clear display of the leverage held by US as an economic superpower and particularly as the biggest market in the world. However, this trade policy and the reckless flaunting of its economic power may lead to an irreversible relative decline of the US as an economic superpower and of US exceptionalism.

In response to the recent US tariff policy, in the immediate term, its trading partners will pursue negotiations with the US to address its demand to reduce trade imbalances. However, the ongoing events have shown that greater access resulting in over reliant on US market is no longer a source of strength and advantage for its trading partners, and instead it is more of a strategic vulnerability. In the past, US was considered as a reliable and predictable superpower. It was also seen as the stalwart promoter of international rules base order as well as multilateralism as seen in US pivotal roles in various international and multilateral institutions. As such, reliance on US market was not considered as vulnerable. The current US policies, however, have upended that long-standing notion. Even if there is to be a change in its policies in the future, the trusts have been broken and it will be almost impossible to mend.

While US will remain a major trading partner for the rest of the world, many countries will now consider possibilities to try to reduce wherever possible their over reliance on the US market by exploring alternative markets and strengthening their own internal markets and domestic demand, especially for those economies that are big enough to do so. Countries will be pursuing bilateral FTAs as well as multilateral FTAs, within a region such as AFTA or across regions such as the RCEP or the CPTPP. Some countries may also borrow the US play book by increasing protections for certain strategic and politically sensitive sectors of their economies.

If this scenario materialized it will also mean that the rest of the world will trade relatively less with the US. This may result in a relative decline of the leverage and importance of the US market to its trading partners. Such scenario may also weaken the US Dollars status as the “currency of the world” as countries will trade more with their non-US partners and less with the US. As the US economy becomes more isolated from the rest of the world, its leverage as an economic superpower will also decline. Having said all that, it is important to maintain realistic perspective. The US will remain for the foreseeable future the biggest and most important economy in the world. However, as the US is now considered as an unpredictable superpower, many of its trading partners will need to hedge their options.

For Southeast Asian countries and ASEAN in particular, this recent event highlighted some importance lessons: First, ASEAN needs to enhance its intra-ASEAN trade as a strategic buffer against external shocks. Increasing intra-ASEAN trade to 30% or more of its total trade should be considered as a strategic security objective to strengthen ASEAN’s internal market and “domestic” consumption and therefore help reducing its vulnerability from external shocks.  Second, ASEAN should effectively make use of the existing FTAs with its Partners including upgrading those FTAs if necessary. In this regard, ASEAN should prioritize its effective use of RCEP as this is the largest FTA in the world and consider opening it for participations by other major economies. Third, ASEAN should continue exploring new trade arrangements with other major partners such as the European Union and other major economies in Africa and the Southern Hemisphere.

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The author is a Fellow of the Foreign Policy Community of Indonesia (FPCI).

The views expressed are his own.