## A Cooperative Advantage

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## Bibliographic details
- Authors: DANNY QUAH
- Published: September 2, 2026

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### Overview
- Southeast Asia (11 countries with a combined population of more than 700 million) has been a major beneficiary of the postwar rules-based multilateral world order, which increased trade and openness and integrated the global economy.
- Major regional gains since the end of the Cold War:
  - Per capita GDP increased more than fivefold.
  - Total GDP expanded eightfold.
  - Extreme poverty (fraction of the population living on less than one international dollar a day) fell from more than half to one-sixteenth.
  - Life expectancy at birth rose a full decade.
  - Adult literacy increased by 20 percentage points.
- Common denominator for these gains: gainful engagement with a rules-based multilateral order that provided a level playing field, peaceful dispute resolution, and cooperation on shared challenges.

### How the rules-based order supported Southeast Asia’s development
- Structural advantages of the rules-based system:
  - A level playing field flattens the distribution of geopolitical power and reduces wasted spending on displays of power.
  - Peaceful dispute resolution lifts substantive issues above zero-sum aggression.
  - Cooperation on shared challenges increases efficiency and avoids duplication, letting states contribute comparative strengths.
- Factory Asia and trade integration:
  - “Factory Asia” emerged with Southeast Asia, Japan, Korea, and—beginning in the late 1990s—China.
  - Key international accords:
    - 1996 Information Technology Agreement (WTO) eliminated tariffs on IT components/products, enabling Indonesia, Malaysia, the Philippines, Singapore, and Thailand to become manufacturing and assembly hubs for semiconductors, hard drives, and consumer electronics.
    - Starting in 2005, after a 10-year phaseout of advanced-economy protectionist import quotas on textiles and apparel, Cambodia, Vietnam, and Indonesia attracted considerable foreign direct investment for those industries.
  - Trade patterns:
    - Trade within ASEAN amounts to 25 percent of GDP.
    - Trade with the rest of the world fluctuates between 80 and 90 percent.
    - For contrast: trade among European Union members exceeds 60 percent of the bloc’s GDP, more than its external trade of 40 percent.

### Three cascading shocks reshaping the international system
- The China shock
  - Character: a supply shock consistent with comparative advantage; exposes importing economies to a surge of inexpensive manufactured imports from China, increasing quantity and quality at any given price (supply curve shifts out).
  - Effects: low-priced, higher-quality imports benefited consumers and downstream businesses but devastated firms exposed to import competition, causing factory closures and job losses and unequal distribution of gains.
  - Key point: the China shock affects distribution within importing nations and is agnostic about bilateral trade balances.
  - Industrial policy dimension: China’s state-guided industry reallocation contributes to global imbalances and fuels concern about anticompetitive behavior; other East Asian economies (South Korea, Japan, Singapore) have used industrial policy to avoid low-quality lock-in.
  - Policy implication: importing countries would do better to redistribute some gains from sectors benefiting from trade to workers and communities hurt by it, rather than only using tariffs or quotas.

- The US shock
  - Character: a demand shock constituted by tariffs, sanctions, export restrictions, and investment controls applied broadly against other economies.
  - Example: Vietnam had been sending a third of its goods exports to the US and was initially hit with a 46 percent tariff (later changed to a baseline of 20 percent, with 40 percent for some products).
  - Reach: Even economies with US free trade agreements, such as Singapore and South Korea, suffered tariff actions.
  - Trend: US trade policy has shifted toward fundamental skepticism about trade itself and is no longer using trade restrictions merely as temporary tools to advance wider objectives.
  - US grievances include accusations that China follows WTO rules’ letter but violates their spirit (example: 2012–14 rare earth export restrictions) and that China exploits gaps and ambiguities in WTO regulations, leading to concerns of “rules-compatible mercantilism.”

- The multilateralism shock
  - Character: a system-wide shock where advanced economies, seeing deteriorating cost-benefit ratios from the rules-based order, retreat from full support and deploy industrial policies to recover positions, turning interdependence into strategic leverage and trade into disputes over chokepoints and balances of payments.
  - Consequence: breakdown of the multilateral order produces collective harm, resembling a classic prisoner’s dilemma or an “epic fail” outcome (as termed in a 2026 paper by Shiro Armstrong and the author).
  - Indicators:
    - More than 70 percent of cross-border trade still follows WTO rules.
    - Disruptions to trade by individual nations have risen more than threefold since 2019 (noted by IMF Managing Director Kristalina Georgieva).

### “Multilateral enough” as a pragmatic path forward
- Central proposal: a return to the old rules-based multilateral order is unlikely; Southeast Asia should pursue a system that is “multilateral enough”—coalitions of like-minded states focused on particular goals and built around aligned incentives rather than universal consensus.
- Core principles for any successful coalition (same as bedrock of the old system):
  - A level playing field.
  - Peaceful dispute resolution.
  - Cooperation in the face of shared challenges.
- Features of a multilateral-enough topology:
  - Flexible coalitions can form without forcing universal participation; groups can pursue treaties or foster unintentional cooperation based on aligned incentives.
  - ASEAN as an example: focused on specific member challenges, open to new members (recently accepted Timor-Leste).
  - Other examples:
    - Regional Comprehensive Economic Partnership (ASEAN plus China, Japan, and South Korea).
    - Comprehensive and Progressive Agreement for Trans-Pacific Partnership (recently added the UK).
    - WTO’s Multi-Party Interim Appeal Arbitration Agreement: set up in 2020 with 16 signatories and has grown to more than twice that number across six continents.
- Role for international institutions:
  - Institutions such as the IMF can play a critical, independent role by keeping new flexible topologies open and inclusive.
  - A flexibly multilateral world need not ossify into competing spheres of influence if coalitions remain open and aligned on incentives.

### Implications for Southeast Asia
- The region is strongly motivated to repair elements of the rules-based order because it benefits most from those core functions and lacks unilateral capacity to restore the old global consensus.
- The China, US, and multilateralism shocks are planet-scale trends unlikely to be undone by a single election or personality change in leadership; nevertheless, core principles of the multilateral system can survive within a flexible topology relying on aligned incentives.
- If successfully deployed, multilateral-enough coalitions would allow Southeast Asia to continue to secure growth, jobs, and well-being while contributing affordable mass-produced electronics and textiles to the world.

*Source: A Cooperative Advantage — DANNY QUAH, F&D Magazine, September 2026.*

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_Source: https://www.imf.org/en/publications/fandd/issues/2026/09/a-cooperative-advantage-danny-quah_