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Home»Finance»Economic Corridors: One Way Forward For US Engagement in Southeast Asia
Finance

Economic Corridors: One Way Forward For US Engagement in Southeast Asia

February 10, 2025No Comments7 Mins Read
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Economic Corridors: One Way Forward For US Engagement in Southeast Asia
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For decades, free trade has been a divisive issue in U.S. politics, criticized by both the New Right and progressive Left. While Washington policymakers focus on competing with China, they have also reset U.S. trade priorities, moving away from traditional free trade agreements and toward narrower frameworks. This shift has created a vacuum in Southeast Asia, where regional countries are strengthening trade ties through bilateral agreements and regional cooperation – often without the United States.

The recent Asia-Pacific Economic Cooperation forum in Peru highlighted the importance of bolstering regional economic integration. It also renewed interests in revitalizing the Free Trade Area of the Asia-Pacific, a long-stalled initiative. Yet the incoming Trump administration’s trade strategy – focused on tariffs, technology, and transactionalism – risks leaving the United States on the sidelines as Southeast Asia becomes a hub for global supply chains.

To remain competitive and to counterbalance China’s influence through the Belt and Road Initiative (BRI), the United States must pivot to a new strategy: investing in and collaborating with Southeast Asian countries on the creation of key economic corridors. These corridors offer a means of building resilient supply chains, deepening bilateral ties in key sectors, and advancing mutual economic prosperity.

IPEF Trade Pillar: Nowhere in Sight

In November 2023, members of the Indo-Pacific Economic Framework for Prosperity (IPEF) concluded negotiations on three of the framework’s four pillars: supply chains, clean energy, and fair economic rules. However, the framework’s trade pillar was left unresolved, primarily due to domestic opposition in the United States to trade liberalization. This underscores a critical flaw in IPEF: while it was designed to be the second-best option to the U.S. rejoining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which the Biden administration deemed politically infeasible, IPEF lacks the market access incentives that made the CPTPP appealing for Asian countries, particularly those in Southeast Asia.

While IPEF has kept the United States economically engaged in the region, its shortcomings have left many Southeast Asian countries skeptical. With the administration’s focus on revisiting bilateral trade agreements rather than multilateral frameworks, IPEF’s future is uncertain. Without meaningful progress on the trade pillar, the framework risks becoming irrelevant. The United States cannot afford to neglect its economic engagements in Southeast Asia, especially as China deepens its economic influence through initiatives like the Regional Comprehensive Economic Partnership.

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Economic Corridors: A Strategic Opportunity

If the United States shifts away from IPEF, it must still deliver a viable economic strategy for Southeast Asia. Economic corridors – regions designated for intensive infrastructure and industrial development – offer one practical solution. These corridors are already transforming Southeast Asia’s economic landscape by enhancing connectivity, attracting investment, and bolstering regional trade. For the United States, investing in these corridors represents an opportunity to strengthen supply chains and reassert its economic presence in the region.

The Philippines’ Luzon Economic Corridor is the first Indo-Pacific project proposed under the Group of Seven (G-7)’s Partnership for Global Infrastructure and Investment (PGII), an initiative launched in 2022 as a strategic response to China’s BRI. PGII coordinates financial resources to identify infrastructure projects and foster partnerships that attract private capital, promoting strategic and sustainable development aligned with private sector and national interests. To date, the United States has secured over $60 billion in investments through PGII from both public and private sources, with the G-7 collectively targeting $600 billion by 2027.

As the latest economic corridor in the region and the only one with direct U.S. involvement, the Luzon corridor is strategically important. With its concentration of economic activities, logistics hubs, and access to raw materials, Luzon is a prime location for development initiatives. The focus is for the Philippines to enhance Luzon’s infrastructure around key areas such as Bulacan Airport, Clark, and the highways connecting Subic Bay and the CALABARZON region, also referred to as the Philippines’ “Silicon Valley.”

Projects under the Luzon corridor offer opportunities to strengthen value chains, especially for semiconductor companies engaged in intermediate components and research and development. CALABARZON is poised to benefit key sectors such as information technology and business process outsourcing, agriculture, and natural resources, with potential for expansion into the Visayas and Mindanao regions. The Luzon Economic Corridor was facilitated by the PGII under the Biden administration. As a result, the United States’ financial resources for the initiative risk being scrapped under the second Trump administration.

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There are two further corridors that the United States could invest in: Thailand’s Eastern Economic Corridor and Indonesia’s Nusantara Ring Corridor. Washington could support the Eastern Economic Corridor by sharing expertise in advanced manufacturing, partnering on digital innovation projects, and investing in sustainable supply chain infrastructure to enhance the corridor’s appeal to international investors. For Indonesia’s Nusantara Ring Corridor, the United States could contribute by providing clean energy solutions, supporting urban planning for the green smart capital, and facilitating public-private partnerships to ensure the corridor achieves its sustainability and equality goals.

Potential Steps Forward: Shifting Concerns to Narrowing Strategic Investments

The international investment community has raised concerns about the potential impact of the next administration’s tax cuts and regulatory incentives, which aim to encourage American companies to invest domestically. If these policies are implemented, U.S. foreign direct investment (FDI) flows to the member states of the Association of Southeast Asian Nations (ASEAN) may decline. In 2023, U.S. FDI to ASEAN totaled $74.36 billion, representing 32.35 percent of the region’s total FDI inflows and solidifying the United States as ASEAN’s largest FDI source. Historically, U.S. investments in ASEAN have been concentrated in sectors such as finance (including banking and insurance), professional and technical services, manufacturing, information and communications, and real estate.

Should these policies take effect, they could significantly reduce U.S. capital, technology, and expertise available to ASEAN industries, particularly in finance, energy, mining, and pharmaceuticals. This shift would pose a serious challenge to industries in the region that rely heavily on partnerships with U.S. investors to drive growth and innovation.

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Despite these challenges, the United States should adopt a multi-pronged strategy by negotiating bilateral trade and investment agreements that focus on specific sectors like technology, manufacturing, and clean energy within these economic corridors. The United States should also expand upon public-private partnerships by leveraging institutions like the U.S. Development Finance Corporation to fund infrastructure projects in partnership with U.S. businesses.

Lastly, the United States should consider expanding upon supply chain initiatives aimed at collaborating with Southeast Asian governments on diversifying and securing supply chains for critical industries, including semiconductors and clean energy. By taking these steps, the United States can align its economic goals with the development priorities of Southeast Asian countries, fostering a mutually beneficial partnership.

Strategic Necessity for the Region and the United States

Resilient supply chains in Southeast Asia are not just an economic imperative; they are a strategic necessity. As global trade flows converge in this dynamic region, the United States must adapt its economic strategy to remain competitive. While traditional free trade agreements may be off the table, investing in economic corridors offers a practical and impactful alternative given the competition in the advancement of technology such as artificial intelligence and semiconductors.

These corridors will not only drive economic growth in Southeast Asia but also advance U.S. interests by creating new opportunities for American businesses and strengthening their regional presence. ASEAN is projected to become the world’s fifth-largest economy, and the United States cannot afford to overlook the region’s economic potential. Economic security is deeply interconnected with national security and Southeast Asia’s corridors represent a critical pathway to achieving both.

Economic corridors in Southeast Asia serve not just as engines of economic growth but as drivers for a more resilient supply chain, particularly through infrastructure development and critical investments in technology. To optimize investment, countries in the region must not only articulate why U.S. investments are essential but also demonstrate how these investments yield tangible benefits for the second Trump administration.

Asia Corridors Economic Engagement Southeast
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