The coronavirus outbreak has left a profound scar on economies worldwide — but it has failed to thaw the long-running trade war between the US and China. In fact, the outbreak of the Covid-19 pandemic has, if anything, only increased those tensions further. The decision by Beijing to halt some US farm imports and impose a new national security law on Hong Kong are just two more developments in a long-running saga — one that ASEAN economies are caught in the middle of.

Beijing and Washington’s strained relations

In recent times, China has established itself as a dominant economic power; one of the fastest-growing economies and a major player in the global import-export market. But this emergence didn’t happen without its critics — such as current US President, Donald Trump. And Trump’s election in 2017 saw years of US complaints over its Chinese trade deficit brought to bear in the shape of tariffs — measures that China reciprocated as the trade war ignited.

Both the Beijing and Washington administrations have shaped the headlines with the tit-for-tat tariffs. But not as widely reported is the impact of the trade tensions on other ASEAN countries and their economies. Some are seeing benefits from the redirection of trade, with a number of companies moving operations from China into neighbouring nations. But the ASEAN bloc is now China’s largest trading partner — and the post-pandemic reality may strengthen that further.

The impact of Covid-19 and internal US civil unrest

Globalisation is a trend that fuelled China’s rise to economic prominence. But is it an era that is now over? It seems somewhat inevitable that globalisation will, at least, scale back in the post-coronavirus landscape. And it may be where Beijing stands to benefit. Not only has China come out of the restrictions ahead of western economies, it has fostered goodwill with neighbours in support of tackling the virus. Of course, it also benefits from closer geographical links.

The US is now also facing internal unrest as the Black Lives Matter protests shine a spotlight on the Trump presidency like never before.

‘With the US administration freshly occupied with the sprawling civil unrest underway, tensions with China have fallen back’, says Tickmill’s Patrick Munnelly. ‘For now, trade negotiations remain intact — though there are still plenty of risks in the near term, especially given China’s public criticism of how Trump has handled the protests’.

Taiwan: A winner or loser from US-China tensions?

With the factors falling into place as they are, China may feel that it has the upper hand as the trade war enters its next phase. But prolonged tensions could have long-term repercussions in the ASEAN region. And one country that may find itself on the frontline is Taiwan. A UN report described it as the ‘largest beneficiary’ of the trade diversion. But, at the same time, it has an uneasy existence with its giant neighbour across the Taiwan Strait.

Taiwan is now bringing investments onshore, with a lack of incentives to opt for the mainland. It has also been widely praised for its handling of the pandemic, which means that it’s coming more into focus on the global stage. If there is a scrambling to reset the supply chain reliance on China, Taiwan could look to become more pro-active in how it positions itself. But it is also something that could antagonise China — something witnessed as recently as March 2020.

Much depends on the future direction of the US-China trade war. ASEAN economies including Taiwan have seen GDP gains to date. But, with the US due to go to the polls in November, the course is far from certain. It could usher in a deeper move away from globalisation. Or it may encourage a fresh wave of investment in the region.

Before then, it is also about how China is able to make the most of the head-start it has on its economic revival. The US does not want to be find itself too far behind. But it is almost certain that failing to rid itself of the coronavirus and growing internal dissent pose a distraction. And where that takes trade in the post-pandemic landscape is still to be decisively determined.