As we move forward in 2025, I would suggest a more ambitious agenda regarding Asia for both global investors and the United States.
This would include paying more attention to both the Philippines and Indonesia, inviting the latter to join the Quad grouping, and putting forward a Pacific Charter to support an open, free, peaceful Asia-Pacific region in the twenty-first century.
Let’s briefly discuss each of these in turn, ending with some suggestions for investors.
Balancing Economics and Security in the Philippines
The U.S. approach to Indonesia—a country of 280 million and the world’s third-largest democracy—should be closely coupled with its neighbor, the Republic of the Philippines.
The Philippines is an important American anchor ally in Southeast Asia. There are more than four million U.S. citizens of Philippine ancestry in the United States, and more than 350,000 U.S. citizens in the Philippines, including many U.S. veterans. An estimated 650,000 American citizens visit the Philippines each year.
The Washington-Manila mutual defense alliance dates back to 1951 and has been back and forth since the United States left Subic and Clark in the early 1990s.
One strategic American mistake going back many decades is the imbalance in attention and resources applied to the security partnership over the economic relationship. The Philippines has a gross national product of about $360 billion and a population of 110 million leading to a persistent need for both private trade and investment. According to the Philippines Statistics Authority (PSA), total bilateral trade with the Philippines is less than $30 billion.
Right now, one of the biggest economic challenges facing industry, especially electronics and semiconductors, is that power is 40% more expensive than in Vietnam, while logistics services and labor costs are 10% and 25% higher, respectively, than the average country in Southeast Asia (ASEAN).
When Intel was in the Philippines from 1974–2009, the company imported about 85% of its inputs including integrated circuits and wafers. There is no reason that chip design cannot become a niche industry for the Philippines, with young graduates from the electronics track trained in chip design, layout, and verification.
In terms of foreign direct investment, Singapore was the largest investor in the Philippines, followed by China, South Korea, and then the United States. America’s standing with the government and people of the Philippines would be stronger if we balanced attention on the military and development aid components with more on partnerships in sectors such as technology. This is especially true given that the headquarters of the Asian Development Bank is in Manila.
We need to consistently confront human rights violations, but this should be separated from the 1998 Visiting Forces Agreement (VFA) as well as the 2014 Enhanced Defense Cooperation Agreement (EDCA). The VFA provides legal protections for and facilitates the entry of U.S. forces to the Philippines for training, exercises, and visits in large numbers. EDCA, in turn, allows U.S. forces to upgrade mutually agreed-upon Philippine military bases such as Basa Air Base north of Manila and in the south Puerto Princesa Air Base, in exchange for rotational access for U.S. forces.
Both lead to more effective deterrence, rapid deployment of disaster relief operations, and opportunities for joint counter-terror and training exercises. These also support the U.S. Indo-Pacific Command’s strategy to disperse U.S. forces, including marine and army units, along the first island chain running from Japan through Southeast Asia. Maintaining and expanding these agreements is critical because outside of the Philippines, the nearest U.S. military forces capable of responding to an incident in the Spratly Islands are in Okinawa and Guam, at distances of 1,300 and 1,500 nautical miles, respectively.
Bring Indonesia into the Quad
The Quad grouping of the United States-Australia-India-Japan promotes stability, security, and prosperity for several reasons. It combines financial firepower, technology supremacy, and a rising consumer middle class. It also has a critical mass with a combined population of 2.2 billion and a GDP of $32 trillion.
This so-called “Quad” grouping has no standing bureaucracy or permanent secretariat. It is certainly not an alliance, since that word is a nonstarter for India. It is an informal but important demonstration of cooperation and partnership. Multiple layers of cooperation reinforce the grouping such as when the U.S. Navy joins the navies of Japan and India for the annual “Malabar” exercises. Furthermore, in September 2021, and much to the fury of France, Australia, the UK, and America agreed to cooperate to supply technology and services to provide Australia with nuclear-propelled submarines.
This spirit of cooperation needs to be expanded on the economics and finance front by inviting Indonesia to join the grouping. Indonesia is a vital American partner in the Indo-Pacific region and US-Indonesia relations are becoming increasingly important in our age of US-China rivalry. China already invests twice as much as America in Indonesia.
Indonesia is the world’s third-largest democracy, the largest Muslim-majority country, the seventh-largest economy by purchasing power, and a leader in ASEAN representing about half of the grouping’s annual economic output. Over $6 trillion in cargo and more than 50% of the world’s oil tanker traffic passes through the Indian Ocean and the Straits of Malacca into the South China Sea. It is also important to note that India and Indonesia have cultural ties going back thousands of years
Bringing in Indonesia would be a diplomatic masterstroke by tying together four of the five largest democracies of the world: India, the United States, Indonesia, and Japan together with Australia. The challenge is that China, which re-established bilateral ties in 1990 and is Indonesia’s largest trading partner, would pressure Indonesia not to join the grouping.
Still, tensions are escalating between the two countries due to a new Chinese law that for the first time allows its coastguard to fire on foreign vessels and demolish structures built in disputed waters, which took effect in early 2021. The new law also enables them to board and inspect foreign ships. In response, Indonesia is moving its naval combat squad’s headquarters to the Natuna Islands so that it can react faster to any incidents at sea. China claims historical fishing and exploration rights in the exclusive economic zone around the Natuna Islands.
But I would go even further by not limiting the number of countries that could build on the core of what the Quad represents. I suggest a “Pacific Charter” that supports an open, rules-based order, with a shared commitment to international law, self-government, freedom of navigation, and territorial integrity.
As a precedent, on August 14, 1941, the United States and Great Britain signed the Atlantic Charter with the purpose of laying out a positive vision for the post-World War II world.
The Pacific Charter
As we advance in a critical decade of U.S.-China rivalry, it is vital that the economies of the Pacific Rim agree on principles that will support continued progress, prosperity, and peace. With this goal in mind, below is a draft Pacific Charter that could be considered by the twenty-one member economies of the APEC:
We, representing the economies of the Pacific, being met together, deem it right to make known certain common principles in the national policies of their respective countries on which they base their hopes for a prosperous and peaceful Pacific Century.
First, they seek no aggrandizement, territorial or otherwise.
Second, they desire to see no territorial changes that do not accord with the freely expressed wishes of the peoples concerned;
Third, they respect the right of all peoples to choose the form of government under which they will live;
Fourth, they will endeavor, with due respect for their existing obligations, to further the enjoyment by all States, great or small, of access, on equal terms, to the trade and to the raw materials of the world which are needed for their economic prosperity and security;
Fifth, they desire to bring about the fullest collaboration between all nations in the economic field with the object of securing, for all, improved labor standards, economic advancement, and financial security;
Sixth, they agree to a code of conduct and diplomatic process that renounces coercion and without threats or the use of force ensures the peaceful resolution of any territorial disputes in accordance with international law.
Seventh, we commit to freedom of navigation to enable all men to traverse the high seas and oceans without hindrance;
We, the undersigned, unanimously agree to these principles to ensure a peaceful and prosperous Pacific century.
This Pacific Charter, and a clear message on the South China Sea, will put China on its heels as we build a consensus regarding freedom of navigation on the seas. Indonesia and the Philippines are often-overlooked U.S. partners in Asia and both deserve more attention.
Finally, South of China and East of India—the expansive, high-growth, and strategically important ASEAN region of 650 million optimistic, youthful, tech-savvy consumers offers a wealth of entrepreneurial talent and an abundance of commercial opportunities.
The United States is the only major country within the Pacific Rim not to have a strategic economic pact with ASEAN. Six of these markets: Singapore, Thailand, Indonesia, Vietnam, the Philippines, and Malaysia, represent a combined number of consumers roughly equal to the size of North America.
Investing in Southeast Asia
Investors interested in capturing the growth potential of Southeast Asia should start with ETFs such as the Global X FTSE Southeast Asia ETF (ASEA), which provides investors with broad exposure to the Southeast Asia region, comprised of Singapore, Malaysia, Indonesia, Thailand and the Philippines.
In addition, country ETFs include (EWS) for Singapore, (EWM) for Malaysia, (VNM) for Vietnam, (IDX) for Indonesia, and (EPHE) for the Philippines.
Of course, you can do better by picking specific stocks trading on U.S. stock markets.
The Cabot Explorer’s latest Southeast Asia recommendation, Sea Limited (SE), is up 208% in the last year. Join the Explorer today to learn more.
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