By Stephen Olson

Occasionally, a single speech by a world leader can perfectly capture the zeitgeist of the moment. When Winston Churchill warned of an “iron curtain” descending across Europe in 1946,[1] he provided a painfully accurate preview of the geopolitical framework – the Cold War – that would dominate the world stage for the next four decades.

Canadian Prime Minister Mark Carney’s recent speech in Davos at the annual meeting of the World Economic Forum[2] might ultimately be viewed by future historians in a similar vein. Carney posited that the world order was not experiencing a “transition” but rather a “rupture” which signalled that the old global system established in the aftermath of the Second World War was gone forever.

Although he never mentioned President Donald Trump by name, Carney’s speech has been widely interpreted as a slightly veiled and scathing criticism of US conduct under the current administration.  The laundry list of US abuses is long, and for the most part, legitimate, ranging from blatant disregard for mutually agreed trade rules, hostility towards international institutions, and even musings about the absorption of sovereign countries or territories.

While the speech provided ample justification for all those inclined to view Trump as a belligerent wrecking ball, a critical corollary of Carney’s indictment should not get lost in the shuffle.  Despite the manifest benefits they have delivered, our post-war multilateral or regional institutions – and many of the assumptions that underpinned them – are now broken beyond repair and no longer fit for purpose. Worse yet, at least some aspects of the old system and old institutions are contributing to the current woes by locking us into ineffective old ways of thinking that no longer reflect present realities.

IMPLICATIONS FOR SOUTHEAST ASIA

For the countries of Southeast Asia, and its primary institutional forum – ASEAN (Association of Southeast Asian Nations) – this could mean recognising that some of its most cherished principles might no longer be valid. Longstanding operational assumptions might need to be reconsidered. Previously inconceivable strategies might need to be seriously considered.

A few sacred totems might need to be toppled. Specifically, the region will need to grapple with several complex and challenging questions:

• Is it time to reflect on traditional assumptions or aspirations about regional cohesion and commonality of interests?
• Will the region’s preference to balance between the US and China continue to be viable?
• Will AI prove to be a game-changer for efforts to balance between the superpowers?
• Will the region’s longstanding reliance on multilateral trade rules underpinning an orderly and stable trade system remain realistic?

Without presuming to have the answers, this paper sets out the underlying realities that should frame consideration of these critical questions.

REGIONAL RESPONSES TO RECIPROCAL TARIFFS

Southeast Asia’s response to Trump’s destructive and rule-breaking reciprocal tariff regime illustrates the extent to which some of ASEAN’s old presumptions and principles simply mask uncomfortable realities.

For the most part, Southeast Asian countries base their strategies not on unified overall regional priorities but rather on the desire to simply cut a better “deal” than their neighbour. Within ASEAN – an institution ostensibly committed to regional coordination, unity, and common purpose – the “success” of any individual country’s reciprocal tariff deal with the US was evaluated almost entirely on whether the final tariff rate was higher or lower than the tariff rate secured by key regional “brethren”. 

Like the proverbial two hikers confronting a hungry grizzly bear on a narrow mountain pass, the objective was not to run faster than the grizzly bear – the objective was only to run faster than your companion. When push came to shove, it was “every man for himself”. One need not look far to find other examples of regional geopolitical, economic, or trade challenges that have been handled in a similar manner over the years.

That is not a criticism of the ASEAN institution. It is not a customs union and countries freely negotiated bilateral FTAs long before the reciprocal tariffs. Nor does it suggest that ASEAN does not have value. Clearly, it does.  But the current circumstances are far from a “business as usual” situation. The reciprocal tariff regime is a full-scale assault on a system that has been a primary driver – perhaps the primary driver – of growth, development, and higher standards of living throughout the region. 

While it would be an exaggeration to refer to the near demolition of that system as existential, one would be hard-pressed to identify another single development that has greater potential to erode the foundations of the region’s success in the post-war era. Given the magnitude of the challenge, this was the moment for the region to realise its articulated aspirations for regional unity and cohesion and to at least attempt to forge a regional response. The fact that it did not is sobering and raises questions that could be usefully reflected upon. As Carney alluded to, maintaining wide gaps between articulated aspirations or assumptions and actual reality is not indicative of a healthily functioning system.

Speaking to the wider global trade community, Carney suggested that the time has come to drop our pretences. He pointed to Vaclav Havel’s seminal 1978 essay “The Power of the Powerless”. Havel describes Soviet era shopkeepers putting up a sign each day in their shop windows that says “workers of the world unite”. In Havel’s telling, the shopkeeper does not particularly believe this, want this, or think that it will ever come to pass. But it is easier and more comfortable to maintain the pretence. The sign comes to symbolise a system that is not working.

When, finally, one shopkeeper does not put up the sign, the system begins to unravel. Inevitably, the unravelling brings turmoil, uncertainty, and even chaos. But Havel believed that it ultimately leads to a new and better world.

It is worth reflecting on whether there are any relevant lessons here for Southeast Asia. Despite the compelling rationale for deep regional coordination in the face of the reciprocal tariff onslaught, and traditional bromides about solidarity, none was forthcoming. Clinging to comforting old pretences or aspirations that are not realistic is not harmless. It breeds complacency and obscures our ability to see, assess, and respond to the world as it is. On the other hand, acknowledging realities, even if they are not entirely comfortable, can help galvanise consideration of needed new approaches for Southeast Asia, perhaps the time has come to stop putting up the sign in the shop window.

US-CHINA RIVALRY: DO OLD STRATEGIES STILL MAKE SENSE?

At least some longstanding strategies that have previously yielded positive results for countries in the region need to be unsentimentally reassessed, and potentially overhauled or dropped entirely. A more open-minded willingness to at least consider approaches that fly in the face of calcified old-world assumptions is required.

One such example is the approach many have taken to the US-China geopolitical rivalry. For most countries in the region, their national interests have been best served by attempting to strike a delicate balance between the US and China on economic, geopolitical, and security issues.  Some, like Singapore, have been masterful in walking this delicate tightrope and deriving significant national benefits from maintaining robust relations with both.

This balancing act – even if it is possible to maintain – might no longer be a smart move. The US-China geopolitical rivalry will deepen, expand, and intensify. Both superpowers are tightening the screws on countries around the world, especially in Southeast Asia, to tilt more definitively in their direction and away from the other side.

US efforts have been entirely transparent and unapologetic, for instance, by threatening tariffs on countries that have the audacity to strike trade deals with China.[3] For its part, China has generally been a bit more subtle, issuing statements with apparent subtexts about the negative consequences of a US tilt, but in some cases it has been just as blunt as the US. For example, its foreign sanction law provides for penalties on entities that comply with foreign (as a practical matter, US) sanctions on China.[4]  In at least some sensitive or strategic sectors subjected to restrictions and sanctions, the hard reality is that you can either comply with US demands or you can comply with Chinese demands, but you cannot comply with both.

Beyond the obvious screw tightening that is underway, however, there is a potentially far more compelling reason for Southeast Asian countries to consider whether the tried-and-true strategy of balancing continues is viable or even makes sense.

To a far greater extent than was the case during the Cold War, the US-China rivalry has a much deeper economic and trade component, especially when it comes to the cutting-edge technologies that will define economic and military pre-eminence in the decades to come. Case in point is Artificial Intelligence (AI), a technology with the potential to bring a revolution more far-reaching than the industrial revolution.

While the US and China battle it out for global AI superiority, no country in the world – large or small – can afford to be left behind the curve. In Southeast Asia, AI is projected to boost regional GDP by 10-18% by 2030, delivering a one trillion-dollar impact, according to ASEAN Ministers for Science, Technology, and Innovation.[5] And since AI is being steadily interwoven into virtually every sector of the economy from agriculture to aerospace, decisions made on AI policies, systems, and structures will ripple through every corner of every country’s economy.

COMPETING SYSTEMS THAT CAN’T BE RECONCILED

The vexing complication for Southeast Asian and other countries is that AI requires an entire self-contained eco-system around it. Two very different, largely incompatible technology stacks – one Chinese and one Western-aligned – are now developing and fighting for primacy. This includes issues such as the underlying chips utilised, cloud platforms, data governance rules, and security expectations. Within the region, the long-term preference would be for sovereign AI – essentially meaning that the region is able to develop and deploy its own infrastructure and models rather than relying on the big players.  This is something Japan is actively assisting with – but for now, the US and China are far ahead.[6]

Mixing and matching between Chinese and Western-aligned systems would not be easy. It would create massive headaches, including rewriting software, retraining models, and migrating data. The development of independent, fully sovereign stacks in the region would require assets – such as proprietary foundational models and large-scale cloud infrastructure – not currently possessed.

Developing local capabilities where possible and potentially using different systems for different sectors might provide some room for manoeuvre. Competition between different systems can spur useful innovation, and incentives to enhance interoperability will be strong. But as the US-China rivalry intensifies, do not underestimate the pressure that will be brought to bear on the region, given the criticality of AI for military applications as well as commerce.

Over time, countries in the region could find themselves confronted with the unsavoury choice of opting into China’s AI eco-system and closing the door on the US system, or vice versa. While this would hold important economic consequences, the geopolitical implications might be far greater.

Beijing and Washington will be watching the region closely, and past experience strongly suggests that neither side would hesitate to punish those who make the “wrong” choice on AI. This is part of the “brutal reality” Carney referred to, in which great power geopolitics is not subject to restraint.

“Sitting on the fence” and balancing between the US and China has been a prudent and mostly successful course for many in the region in years gone by and it is understandably reassuring to hope and believe the old ways can continue to work. But leaders will now need to carefully assess whether that will continue to be the case in the years and decades to come. For some, it might be – for others, perhaps not. The worst-case scenario, however, would be to antagonise both protagonists.

Assessments of which AI eco-system best suits national interests will inevitably differ from country to country in Southeast Asia. There is no more reason to expect a unified region-wide approach to AI eco-systems than there was for a region-wide approach to negotiating Trump’s reciprocal tariffs. 

While the most obvious result will be a degree of alienation from whichever superpower is jilted, it will also serve to accentuate fault lines among Southeast Asian countries that fall on opposite sides of the US-China divide. While any such fault lines are unlikely to be hard and absolute, it will be difficult to avert some degree of fragmentation,[7]  potentially even creating interoperability complications between countries that opt for different systems.

ADIEU GENEVÈ?

Another long-cherished principle that has guided and propelled the region along its remarkable economic development trajectory in recent decades has been its firm belief in – and strong reliance on – the World Trade Organization (WTO). The rules-based global trade system, embodied in the WTO, progressively reduced tariff and non-tariff barriers and created orderly and enforceable trade rules to prevent (at least in theory) the big fish from eating the little fish. This allowed the small, trade-dependent countries in the region to become export powerhouses and to access the concomitant economic development benefits.

Today, even in the estimation of the WTO’s staunchest proponents, the organisation has been badly battered,[8] still sputtering along but unable to address the stresses on the system or undertake the reforms needed to kick-start the WTO back into gear.

The economists tell us that multilateral trade and investment liberalisation – as we have seen in years gone by – produces the largest gains, but it is no longer a serious possibility at the WTO, thanks largely to the wildly divergent priorities and interests of members and the need for consensus. An update of the badly out-of-date trade rule book and functional enforcement is likewise out of reach, owing to, inter alia, the strong opposition of the US. Instead, we are faced with rising trade barriers and an increasingly “law of the jungle” approach to trade relations.

This is not to suggest that the WTO is obsolete. It continues to do excellent work in areas like trade facilitation, capacity building, technical assistance, and trade policy reviews. That should continue. But the grandiose founding aspirations that the organisation would drive a global reduction in trade barriers, and ensure that a trade-rule book kept up to date and enforced, should now be respectfully laid to rest. None of these things is going to happen.

As the WTO continues to flounder, Southeast Asia must now reassess the extent to which it can count on an orderly and benign global environment for its economically critical exports. There are some things in life we only fully appreciate once they are gone, and a stable global trade system could prove to be one such example.

For an indication of how badly things have deteriorated and how deeply the operating environment has shifted, look no further than a recent opinion article by Maroš Šefčovič,[9] the EU’s top trade official. Šefčovič echoed many of Carney’s comments on eroded institutions and the urgency of acknowledging and acting upon uncomfortable new realities.

Šefčovič argued that the WTO is increasingly misaligned with the realities of today’s global economy, which is shaped by geopolitical rivalry, complex supply chains, digital services, and large‑scale industrial policy. He contended that the institution’s traditional reliance on the Most‑Favoured‑Nation (MFN) principle—requiring equal treatment for all members—was designed for a more stable and cooperative era. In the current environment, MFN has become a structural constraint that prevents the WTO from adapting to new forms of trade and from responding to the strategic behaviour of major economies. Take a pause and reflect on how profound this is. It is as if a rocket scientist were questioning whether the law of gravity was still relevant for space travel.

Šefčovič emphasised that MFN slows progress by forcing ambitious members to extend benefits to all, including those unwilling to commit to higher standards. This dynamic discourages innovation in areas such as digital trade, climate‑related rules, and supply‑chain security. He argued that the WTO needs a more flexible architecture—what he called “variable geometry”—that allows coalitions of like‑minded countries to negotiate new rules without automatically granting MFN benefits to non‑participants. Similar thoughts have been expressed by Southeast Asian leaders, including Singapore Prime Minister Lawrence Wong.

Such plurilateral arrangements, Šefčovič suggested, are essential for revitalising the WTO and preventing it from being sidelined by regional agreements and unilateral measures. He warned that without reform, the WTO risks drifting into irrelevance as global trade governance fragments.

When the lead trade official of the EU, arguably the staunchest proponent of rules-based trade in the world, questions whether the most foundational principle of the entire trade system – MFN – continues to be relevant in today’s world, that is a wake-up call too loud for anyone to sleep through.

Carney and Šefčovič appear to be kindred spirits, both arguing that global institutions must shift from aspiration to execution and that legacy frameworks—whether trade rules or financial systems—are too rigid for a world defined by climate transition, technological disruption, and geopolitical tensions. Progress now depends on adaptable coalitions, clearer standards, and practical mechanisms that mobilise real investment and action rather than rely on outdated universal consensus models.

Again, all these are useful points that can be fruitfully reflected upon within Southeast Asia’s primary legacy framework – ASEAN.

CARNEY’S CLARION CALL

It would be a mistake to view Carney’s pointed Davos speech primarily as a takedown of Donald Trump – although it certainly was that. Perhaps even more importantly, it was also a clarion call to see the world as it is, to abandon old pretences, and to work together pragmatically in new and creative ways that would have been inconceivable in past decades.

Presented with a choice between the stable and predictable world order we previously envisioned and the more chaotic world we have entered, most would opt for the stable old world. Unfortunately, that option doesn’t exist and perhaps never did. The sooner Southeast Asian leaders reconcile themselves to that reality – and adjust policies accordingly – the better.

As Carney suggested, middle powers are not powerless. They can construct a new order, based on shared values and interests where they exist and a willingness to accept and acknowledge where they don’t.  Carney warned against “naïve multilateralism” and reliance on institutions but he was not suggesting that countries attempt to go it alone or build “fortresses” – in fact, he warned against it. Instead, he called for issue-by-issue coalitions with partners that share enough common ground to act together – a new and more fluid order that reflects today’s volatility.

Southeast Asia can and should be a constructive and integral player in this new order. But, as Carney counselled, the first step is “honesty about the world as it is.” For Southeast Asia, reflections about regional cohesion, approaches to the US-China rivalry, and the relevance of the multilateral trade system could be fruitful. This might require an open mind towards potentially tipping over a few sacred totes – which will always generate consternation and hand-wringing – but the region has little choice.

For appendix and endnotes, please refer to the original pdf document.

• About the author: Stephen Olson is Visiting Senior Fellow at ISEAS – Yusof Ishak Institute and a Non-Resident Fellow and Visiting Lecturer at the Yeutter Institute of International Trade. Olson is a member of the World Economic Forum Global Futures Council on Trade and co-leads a joint workstream on geopolitics and trade. He began his career in Washington DC as a US trade negotiator.
• Source: This article was published by ISEAS – Yusof Ishak Institute