On the Horizon 2023 | Asia

3 Things to Watch

A Web of Separate but Interconnected Economic Ecosystems in the Indo-Pacific

Reconciling growth and economic security is easier said than done. The Inflation Reduction Act’s subsidies for American companies address climate change but raise alarm among allies. As countries throughout the Indo-Pacific region rethink supply chains dependent upon China or at risk of disruption, there are growing economic and political costs associated with economic security.

The Biden administration’s restrictions on semiconductor exports to China mean that, while complete “decoupling” is unlikely, strategic sectors will become hived off and “friendshoring” of supply chains will accelerate. At the same time, liminal zones dependent upon both China and the United States will emerge in places like Southeast Asia. A complex but interdependent web of systems and orders with different rules and norms is likely to result.

Continued Regional Tensions and Crises

As seen in China’s response to House Speaker Nancy Pelosi’s August 2022 visit to Taiwan, great power competition is here to stay. In 2023, the United States will continue to shift resources, expand defense budgets, and enhance deterrence. Combined with Australia’s elevated focus on the Pacific Islands, India’s continued tensions with Pakistan and China, Japan’s announcement of an expanded defense budget, and South Korea’s shift toward the United States, security tensions between the United States and its allies and partners, and China, will likely increase.

Meanwhile, other regional crises continue to undermine stability. Afghanistan’s Taliban government poses a difficult challenge, particularly as the United States attempts to build out a policy that brings relief to struggling Afghans without running afoul of sanctions. North Korea is likely to further escalate tensions on the Korean Peninsula with missile and nuclear tests. The civil war in Myanmar will worsen and may spill over. All the while, the impacts of the war in Ukraine will continue to upend energy and food security throughout the Indo-Pacific.

Growing Prominence of Global South States and Regional Multilateralism

While “great powers” dominate foreign policy discussions, others are more and more active. India has emerged as an increasingly assertive voice, and New Delhi plans to use its G20 Presidency to demonstrate its ability to manage rising tensions. Like India, Indonesia has had a reputation of “punching below its weight,” but Jakarta availed itself of the 2022 G20 presidency and plans to use its 2023 chairmanship of the Association of Southeast Asian Nations (ASEAN) to demonstrate leadership. Significantly, both countries pushed back on efforts to sanction Russia, instead emphasizing their interests in energy and food security.

Rising states and emerging markets will also continue to embrace multilateralism. Although ASEAN struggles with several crises, the grouping continues to expand and remains central to regional diplomacy after a successful November “Summit Season.” In the Indian Ocean, the new I2U2 quadrilateral of India, Israel, the United Arab Emirates, and the United States signals actualization of India’s linkage of the Indian and Pacific oceans into one integrated strategic space. Smaller states will also continue to assert their agency and interests through multilateral institutions, as seen in the Pacific Forum’s efforts on climate change.