US' 'de-risking' strategy seen creating insecurity

The United States' "de-risking" strategy has created insecurity among the countries in Washington's designated Indo-Pacific region due to protectionism, according to a US security and foreign policy expert.

De-risking has emerged as the preferred tactic in the Biden administration's international economic strategy, mainly toward China, instead of "decoupling".

"I think in general, really, it doesn't matter for the countries in the region how you call it, you call it decoupling, de-risking or any other term. But I think what matters is the practical effect on their economies," said Huong Le Thu, a nonresident fellow at the Center for Strategic and International Studies (CSIS). "And given that the region is primarily still a developing economies region, they are interested in open trade, open market, access to the market.

"So, the more protectionist policies from the US, the more insecure they will feel," she said at an event earlier this month titled "De-risking the Economic Relationship With China: Views From the Indo-Pacific" hosted by the Center for East Asia Policy Studies at the Brookings Institution and the Research Institute of Economy, Trade and Industry (RIETI).

Huong said that "there is a lot of still unclarity" in the term "de-risking".

"I think it's still really relatively poorly defined and poorly explained to the countries in the region," she said. "For example, de-risking for home, for the United States, and if so, why does that matter for the countries in the region?"

Huong pointed out that de-risking is still continuing the practices of trying to disentangle China in a protectionist way.

"The US chooses certain critical sectors to protect. That makes sense for the US, but countries in the region are very intrinsically interconnected with China and the global trade system," Huong said. "So, it's not going to be a straightforward solution for them."

She also said that "de-risking" in practice means asking to choose. "Because if we're still limiting access of China to certain sectors in certain trade aspects, then for countries in the region, it does mean in a practical sense forcing to choose, despite the official rhetoric coming from the US government that it is not imposing the choice."

Huong said that "the more direct response to de-risking" came from the Straits Times, a Singapore news outlet, saying that "de-risking is actually introducing risk to everyone and involving more opacity to the global financial system is not reassuring anyone in particular".

Singapore Deputy Prime Minister Lawrence Wong talked about how de-risking could just as well lead to a polarized world economy in a speech during his visit to Tokyo in June, the Straits Times reported. "If de-risking is taken too far, it would prompt reactions and unintended consequences. Over time, we will end up with a more fragmented and decoupled global economy," said Wong.

Huong said that when it comes to the digital economy, connectivity, and the internet, the region is the fastest-growing market, with high potential. To support the region's digital economy ambitions and broader industrial policies, the countries want support from both the US and China. But some countries have lofty ambitions for industrial policies. Vietnam is one of them.

"And what they are afraid of, and that was fleshed out in that Huawei ban in the 5G choices, is that they are worried about the potential of a digital Iron Curtain," Huong said.

Huawei, the Shenzhen-based Chinese tech giant, once vied with Apple and Samsung to be the world's biggest handset maker and has been promoting its 5G technology and equipment in regions worldwide.

Since 2019, the US has issued rounds of restrictions to cut Huawei's access to chipmaking tools essential for producing its most advanced models. Washington also pressured some countries to ban 5G equipment provided by Huawei. Some European countries also have joined the Huawei ban.

"They are not in the position to be in either camp because, for example, when the US and some of our partners and allies introduced the Huawei ban, a lot of countries in the region have been using Huawei for their 3G's and earlier generations, so it's very hard to shift," said Huong.

Huong said that another reason countries find it hard to choose sides is that they need assistance in various initiatives to train the IT capacity and build the incubators. "The prospect of that digital Iron Curtain is certainly something terrifying for the region," she said.

Huong described Vietnam as "a very interesting case" because it has emerged as one of the beneficiaries of the tariff war between the US and China, becoming one of the destinations of some redirected investments as well as for companies and manufacturers.

US President Joe Biden visited Vietnam in mid-September in an effort to upgrade the bilateral relationship to a comprehensive strategic partnership. He advocated the idea of more cooperation in technology and support for Vietnam's role in the global supply chain, which aligns with Vietnam's aspirations.

"But I think we have to distinguish between short and midterm as well as long-term implications because, yes, it is a window for opportunities for these countries in the short to midterm," Huong said. "But I think in the long term, it introduces more risks and more challenges to those countries, including the countereffect that this strategy wants to achieve, which is even becoming more dependent on China, given the supply of their interdependency with China in terms of trade and supply," said Huong.

Huong also discussed the sustainability of de-risking. "Like with the TPP or latest CPTPP, the US ended up withdrawing."

The Trans-Pacific Partnership (TPP), led by the US, was a proposed trade agreement among 12 Pacific Rim countries to promote economic integration. However, the United States withdrew in 2017.

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is a revised version of the TPP, now involving 11 member countries.

The Regional Comprehensive Economic Partnership (RCEP), proposed by China, is a free-trade agreement among 15 Asia-Pacific countries, promoting economic integration and cooperation and forming the world's largest trading bloc by population and GDP.

"You can't set standards. You're not there," Huong said.