The success story of the East Asian economy was about the connection between trade and industrialization—look at the cases of Japan, South Korea, China, Taiwan and Singapore. Trade-oriented industrialization drove regional economic integration through trade and investment—and integration into the world economy that was made possible by conducive global economic growth and a relatively open global economy.
Unfortunately, the party is now over. Many economists are beginning to talk of a ‘new normal’ global economy with slower growth and trade. Brexit, the ascendency of US President Donald Trump and anti-immigration sentiment all point to a growing resistance to globalization. At the March 2017 G20 meeting in Germany, even finance ministers and central bank governors backed away from agreement on support for free trade and investment, Chatib Basri, former Indonesia’s minister of finance, wrote in an opinion piece in EastAsiaForum.org.
It’s premature to conclude that the world has fully embraced protectionism, but the conditions for trade liberalization and negotiating trade agreements are tougher than they were. Economic recovery in the United States and some parts of Europe remains fragile, and China’s growth though robust is also on the wane.
Against this ‘new normal’ backdrop, what can ASEAN countries do to counter this trend and mitigate its impact? What role can regional cooperation play in addressing these emerging challenges in the global trade and investment environment?
Slowing economic growth will impact on job creation, and ASEAN nations cannot afford slow economic growth—more jobs are essential to win the fight on reducing poverty.
Encouraging Structural Reform
ASEAN and East Asia must continue to encourage economic growth to improve the socio-economic welfare of their citizens. Even though global growth is sluggish, East Asian economies still have relatively high growth. The potential is there. East Asia must strive to achieve it growth potential.
Fiscal expansion is one possible solution for those countries that have the fiscal space—though that’s a luxury afforded to few countries in ASEAN. Room for monetary expansion is also limited due to the growing possibility of the normalization of US monetary policy.
Forcing the pace on continued structural reform is where progress is vital. But structural reform is much easier said than done. Further unilateral liberalization is not easy when the rest of the world is consumed by creeping protectionism, and the progress of a multilateral agenda is still in limbo as the World Trade Organization’s Doha Round seemingly goes nowhere.
A more feasible way forward is a combination of structural reform and the revitalization of regional cooperation. Pursuing openness through regional economic integration will not be easy. The trend towards deglobalization demonstrates that the original model of globalization—rapidly reducing the barriers to trade of goods and services trade— does not have strong political backing.
It’s clear that economic reform and trade liberalization need now to be accompanied by policies that ensure that ‘losers’ in realizing the overall gains from trade are effectively compensated. Where distribution of the gains from trade has not been attended to, globalization’s positive impact has found less support among the people and political will for it has waned. A consequence is the pockets of deep political resistance to globalization.
Restoring trust in globalization is now a primary goal. This can be done by highlighting globalization’s success stories and its direct and positive impact on people’s lives. The success of reform does not hang on the merits of the reform’s agenda, but rather on political support—an intrinsic dilemma of reform is that the cost is more immediate and concentrated and the benefit is more diffuse and long term. This makes it necessary to get ‘quick wins’ or success stories to ensure political support.
Regional Cooperation Needed
These circumstances underline the need for multi-stage regional cooperation. This can start slowly and then tackle more complex issues. For example, instead of negotiating over how to lower trade barriers, negotiations can start on issues related to connectivity and capacity building.
These objectives are acceptable politically by nearly all member countries and can be economically beneficial. Revitalizing the ASEAN infrastructure fund is another example of a ‘low hanging fruit’ in regional cooperation.
If this kind of cooperation can be carried out, people will feel its real impact of regional cooperation and ASEAN states can move forward with a more complex agenda for economic integration.
