SINGAPORE—Secretary of State Mike Pompeo on Friday promised a new era of U.S. economic engagement with Southeast Asian countries, extending an olive branch to a region increasingly concerned about being caught up in a trade battle between the U.S. and China, two of its largest trading partners.
At a meeting with the region’s 10-country economic bloc, the Association of Southeast Asian Nations, Mr. Pompeo said the U.S. would make a $113 million “down payment” to help develop the region’s digital connectivity, infrastructure and energy resources. He said the money, first announced in Washington earlier this week, heralded “a new era of U.S. economic commitment to peace and prosperity in the Indo-Pacific,” but offered few details to support his claim.
The fast-growing region of 600 million people is a key partner in Asia for the U.S., where Washington has sought cooperation on trade, maritime security and economic sanctions on North Korea. But the region also faces pressure from other powers, notably China, which has sought more multilateral trading at a time when the U.S. is shunning sweeping trade agreements and seeking to renegotiate past deals it says are unfair.
Chinese President Xi Jinping is pushing an economic agenda that includes support for multicountry trade agreements and a proposed free-trade area covering the whole of Asia. Those agreements would rival a similar grouping once proposed, and then abandoned, by the U.S. Mr. Xi has committed billions of dollars to China’s Belt and Road infrastructure initiative, a signature foreign policy to consolidate China’s diplomatic and commercial ties with countries along Asia-Europe trade routes.
Trade “is the elephant in the room,” said Malcolm Cook, senior fellow at the Institute for Southeast Asian Studies in Singapore. “At the front of Southeast Asian states’ minds—including Singapore—will be the blowback effects on Southeast Asian economies of U.S. trade actions against China.” Even with his financial offer to the region, he said, Mr. Pompeo “is coming with a pretty big deficit,” Mr. Cook said.
Southeast Asian countries worry that they are among the most exposed to negative effects of a U.S.-China trade war. The region is deeply tied to global supply chains in industries specifically targeted by an escalating trade dispute, such as electronics, agriculture and automotives.
In many cases, the region’s smaller nations have already had their fingers burned by the economic largess of larger powers seeking to promote soft power. China’s Belt and Road investments have sometimes been slow to pay off or saddled the intended beneficiaries with debt.
In Malaysia, where Mr. Pompeo met Prime Minister Mahathir Mohamad earlier in the day, officials are investigating whether a previous administration used Chinese infrastructure funds to help pay debts owed by a state investment fund at the center of one of the world’s biggest graft probes, The Wall Street Journal reported this week.
The prospect of a trade war between the U.S. and China adds to these concerns.
The Trump administration on Wednesday threatened to more than double proposed tariffs on imports from China, while Congress passed a defense bill designed to restrict Beijing’s economic and military activity. The U.S., which has already affixed tariffs on billions of dollars in Chinese imports, said it would consider more increasing tariffs on a further $200 billion worth of Chinese goods to 25%, up from an original 10%.
Southeast Asia has sought to mitigate against the impact of a trade war. It is pushing ahead with its own regional trade negotiations, including the 16-country Regional Comprehensive Economic Partnership backed by China, which Asean ministers said in a statement this week was “a centerpiece of its external economic relations, particularly at a time of growing uncertainty in global trade.”
Four countries from the region were among the 11 that agreed on the Trans-Pacific Partnership, a sweeping trade pact early this year that excludes the U.S. after Mr. Trump pulled out of the negotiations.
While the region’s formal response to Mr. Pompeo’s remarks on Wednesday was warm, some of its leaders warned of the knock-on impact of trade disputes.
“We are transiting into a multipolar world,” Singapore’s foreign minister and the chair of the week’s Asean meetings, said at the opening ceremony on Thursday. “We are all acutely aware of the storm clouds of the trade war,” he said.
Write to Jake Maxwell Watts at jake.watts@wsj.com
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