Post-Pax Americana and the Conundrum of the Indo-Pacific Middle Powers
The United States has declared war on the global trading system that it created. Having been the champion of free trade since the end of World War II, which ultimately benefited Washington the most, the Trump administration’s decision on April 2 to impose a baseline duty of 10 percent on all imports and reciprocal tariffs on strategic partners and foes alike has upended expectations worldwide for the United States to uphold trading norms and values that have governed the global economic system. The role that tariffs can play in achieving the White House’s longer-term goal of decreasing U.S. dependence on imports remains to be seen, but it is clear that tariffs are an integral part of the Trump administration’s broader policy objectives to enhance the global standing of the United States in a reshaped global order.
The response to the U.S. policy goals from key Indo-Pacific governments, rather than U.S. actions themselves, will be one of the greatest uncertainties moving forward. In the near term, individual governments are expected to continue to scramble in order to reach a deal with Washington for exemptions from tariffs. But with Beijing warning that it would strike back against countries trying to negotiate favorable unilateral deals with the United States by curbing ties with the People’s Republic of China, the risks for the middle powers of the Indo-Pacific have only increased. Just as the United States has a longer-term vision to wean itself from imports, efforts by even the staunchest of U.S. partners to decrease dependence on both Washington and Beijing will accelerate. The question will be the extent of the derisking strategy, and whether it can lead to a regional bloc centered around the Indo-Pacific middle powers that have a great deal to lose with any seismic shift in the regional order. The possibility of a united front amongst the region’s key middle powers not only to lessen economic interdependence with the United States, but also to assert greater political leadership for collective resilience to uncertainties is well within the realm of the possible that would have been unthinkable only a few years ago.
Solidifying a U.S.-Less Regional Economic Order
Granted, the Indo-Pacific has been bracing for a diminished U.S. economic role for nearly a decade. When the United States pulled out of the Trans-Pacific Partnership agreement in 2017, the consensus was that the trade deal would collapse without the world’s biggest economy leading the way. Instead, the remaining eleven countries of the trade deal including Japan, Australia, New Zealand, and Singapore not only ensured that the succeeding multilateral free trade agreement was concluded in 2018, but that the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) would actually thrive. With the United Kingdom joining the pact in 2021, and both China and Taiwan seeking to join the group as well, the world’s most ambitious trade deal has been successful without the United States.
During the Biden administration, Japan, in particular, made a point of calling for Washington to join the CPTPP at every high-level public occasion, but in vain. Despite President Joseph Biden’s focus on rebuilding partnerships with allies and partners across the region, lack of U.S. interest in pursuing new trade deals, including multilateral pacts, was shared by both Democrats and Republicans alike. While the Biden administration was quick to acknowledge the gap in U.S. economic presence, the Indo-Pacific Economic Framework (IPEF) was unable to satisfy the needs either of the United States itself to promote its digital trade interests, nor did it give way to bolster U.S. market access that was sought after by the emerging economies of South and Southeast Asia in particular. As such, the Indo-Pacific at large had adapted to nearly a decade of not having any significant trade agreements with the United States. The end result has been growing confidence amongst countries across the region to move forward with ambitious trade deals without the United States, which has led to closer cooperation between governments with shared interests to ensure stable trade relations more broadly.
Limitation to the Power of Foreign Direct Investment
Meanwhile, the latest round of tariffs imposed upon countries across East, South, and Southeast Asia by Washington has made clear that boosting foreign direct investment (FDI) to the United States cannot stop the tariff tide. In December 2024, for instance, Softbank CEO Masayoshi Son became the first Japanese to have a public meeting with President-elect Donald Trump, rather than Prime Minister Shigeru Ishiba or another high-ranking government official. A commitment of $100 billion from Softbank at that time was seen as a bold investment by the technology group that was eager to invest in AI infrastructure in the United States. By the time that commitment was elevated to a $500 billion deal by partnering with OpenAI and Oracle to form the Stargate project the following month, Japan was thought to be defining how private sector partnerships in critical technologies could forge new economic security ties with the United States. Certainly, one of the key factors driving the Trump administration to impose tariffs is to incentivize FDI as part of the broader goal to bolster domestic production across the board. What has become clear, though, is that investments will not preempt the imposition of tariffs. Nor will strong personal ties with President Trump be a safeguard against tariffs.
Wariness about investing in the United States especially amid concerns about continued changes to trade policy will not, however, necessarily lead to a shift simply to increase reliance on China as an export or FDI destination. Ironically, China is emerging as a more predictable trading partner, and Beijing itself has gone on the offense, accusing the United States of “weaponizing” trade and putting global growth in jeopardy. Indeed, a number of Japanese and Korean trade analysts have argued that it is China that is now championing the rule of law and a more predictable trading order. Still, Beijing’s pronouncements from late April that there would be consequences for countries that promise to lessen ties with China as part of a deal to curry favor with the United States looms large, given the power of the Chinese economy, not to mention the obvious geographic proximity of China compared to the United States.
Saying No to a Chinese Embrace
Hedging against the United States amongst the middle powers of the region including Japan and South Korea will be inevitable. That should not, however, spell greater dependence or control by China. As much as Beijing may tout itself as a champion of the rule of law and greater stability when it comes to trade rules, the foundation of relations with China is all too often defined by distrust. In short, whatever carrots Beijing may proffer do not offset the many big sticks that China wields. To be sure, at first blush, relations between the great powers of East Asia, namely China, Japan, and South Korea, are becoming stronger and more coordinated since early 2025. In fact, the meeting of trade ministers of the three countries in Seoul in March was heralded as a significant shift in trilateral relations. The timing of the ministers’ meeting was without doubt no coincidence. They publicly declared their shared commitment to economic stability in East Asia in the days before the latest tariff increase announcement by the United States, and the three countries highlighted their support for a rules-based, transparent, and predictable trading as well as investment environment.
What should not be forgotten, though, is that the previous week, the Japanese government officially lodged a complaint with the Chinese authorities for deliberately misinterpreting Prime Minister Ishiba’s comments regarding historical memory as well as the status of Taiwan following his meeting with Foreign Minister Wang Yi. According to the statement released by the Chinese government following the bilateral meeting, Wang said that Japan should “fulfill important political commitments on historical issues and the Taiwan question,” and called for Tokyo to send “the right signal to the world with a responsible attitude towards history, the people, and the future.” The Japanese foreign ministry, however, flatly denied that such a statement was ever made.
With distrust remaining high amongst East Asian governments despite shared concerns about the outlook for the global economy, it is worth noting what has not been said as much as comments that have been made in joint public statements. One glaring absence from the public statement to conclude the trilateral trade ministers’ meeting was any comment directly referring to the United States. To be sure, wariness about Washington’s trade policy is a force unifier for the subregion. Nonetheless, there is a clear divide between Beijing, Tokyo, and Seoul on just how they perceive the challenge posed by Washington, and realist though they may be, there is seemingly no consensus on how they might be able to effectively approach the United States. Nor is there a united front amongst the region’s middle powers to push back against Chinese economic coercion. The wild card amid the uncertainties about U.S. trade policy and foreign policy goals writ large is to what extent East Asia and the Indo-Pacific region have the appetite to move forward in forging partnerships without either Washington or Beijing, and what would motivate the development of such new ties. Just as neither Tokyo nor Seoul have completely aligned with the United States in defining what the China challenge is on the economic front, sharp differences will remain in what a middle power-centric regional order could look like, and the appetite to shoulder the risks that would come with developing such a regional architecture.
A Third Way Out of Necessity
A lack of clarity in Washington’s longer-term vision for U.S.-Sino relations continues to weigh heavily across the Indo-Pacific. While the Trump administration hit pause on its initial plan to impose country-specific tariffs with the exception of China, the threat of striking with country-specific tariffs by July that would hurt some of the most successful Indo-Pacific countries including Vietnam and Thailand looms large. Meanwhile, as the only country that struck back against the White House with its own tariffs against the United States, China is facing tariffs on its U.S. exports to the tune of 145 percent. The consequences of such eye-watering tariffs on the U.S. economy and global growth remains to be seen. What is clear, however, is that Beijing remains in a unique position of relative economic as well as political strength whereby it can challenge U.S. actions directly and potentially change the course of its own economic directives.
With the two largest economic powers of the world showing no signs of shying away from an escalating trade war, some of the biggest casualties of the resulting turmoil will be found in the Global South, especially in Southeast Asia. Vietnam, for instance, had been one of the biggest gainers of joining the free trade deals of CPTPP and Regional Comprehensive Economic Partnership (RCEP). At the same time, it had emerged as an attractive alternative to China as manufacturers increasingly sought it out as a destination for lower cost production. As a result, there will be a growing convergence of interest between the countries that have benefitted from the China-plus-one hedging strategy that has emerged in recent years, and the countries that have invested further in Southeast as well as South Asia to derisk from the U.S.-China competition.
The Power of Shared Woes
Trade relations are not the only source of uncertainty for the middle powers. Despite the brinksmanship over tariffs, there is yet no strategic clarity from the White House about how it envisages what relations with China should be moving forward. An economic victory against China may well be defined by having a trade surplus in all sectors with the world’s second-largest economy, but that goal will not be shared by countries across Northeast, Southeast, and South Asia. Meanwhile, what unites the Indo-Pacific countries will be a shared interest in restoring predictability and clear rules of engagement economically and politically, anchored by stability that would stave off a kinetic conflict.
For now, no clear leader amongst the middle power has emerged to rally them as a cohesive group. The emergence of regional pacts, including the Quad and AUKUS, include the United States, while inter-regional ties are specific, such as the Japan-Philippines defense pact. Most countries in the region, including Singapore, continue to seek a balance in furthering relations with both the United States and China. Nevertheless, increasing uncertainties about U.S. trade goals and foreign policy objectives on the one hand and persisting distrust of China on the other will give the impetus for more inter-regional cooperation. With a track record of developing trade agreements successfully without the United States, the question is whether countries across the region led by some of the most powerful, including Japan as well as India, can promote partnerships that go beyond trade pacts to achieve their shared goals to ensure regional stability amid the foreseeable uncertain times.
