Despite the improving global economic outlook in 2018, the Asean+3 (10 members of Asean and China including Hong Kong, Japan, and Korea) region faces external risks such as trade protectionism, and also longer-term challenges posed by changes in trade and production networks, and technology in a rapidly changing world.
Integration into the global economy has underpinned our region’s growth and development. As highlighted in the thematic chapter of our newly released ‘Asean+3 Regional Economic Outlook 2018’, economies adopted a “manufacturing for exports” strategy to jumpstart their development, earning foreign exchange through exports to import capital goods, and in the process built productive capacity and created jobs.
This story is of course well known, but at a time when integration into the world is under threat from trade protectionism, it is worth reminding ourselves of the importance and benefits of free trade in our economic development. And at a time when openness to trade is sometimes seen as vulnerability to external shocks, we need to remind ourselves that trade had lifted growth and helped the region to recover quickly from past crises.
The rebound in our region’s exports after the Asian Financial Crisis led our economic recovery, and was supported by external demand from a robust US economy and the emergence of China as the centre of the region’s production networks from the early 2000s.
It would indeed be a setback if the world were to take a step back in terms of trade integration due to unilateral trade protectionist actions. In AMRO’s flagship report this year, we identified trade protectionism as one of the key risks to the region’s growth outlook.
Not only will a US-China trade war be a lose-lose situation for the two countries, but there will also be collateral damage to the whole of Asia due to the strong production networks between China and the countries in the region, many of which also have close trade ties with the United States. A US-China trade war is in fact a US-Asia trade war, with significant fallout on the rest of the world.
Besides this near term risk of trade protectionism, there is much else to occupy the policymakers’ minds as they consider what could bring their economies to the next level of development, while maintaining financial stability. The “manufacturing for exports” strategy that led our region’s growth continue to be important for developing economies in the region such as Vietnam and Cambodia as they integrate themselves into global value chains.
When considering these issues, technology and its impact must surely be at the top or near the top of policymakers’ minds. Technology is a double-edged sword. On the one hand, technology and automation means that manufacturing for exports will no longer generate jobs as in the past. Within our region, the extensive automation in the car industry is one example. On the other hand, technology has also facilitated the emergence of the services sector as a potential engine of growth and development.
What would be an appropriate response to these challenges and opportunities? For an individual economy in Asean+3, the key recommendation is to build resilience through multiple engines of growth, including through the growing services sector.
For our region, the key recommendation is to strengthen intra-regional connectivity and integration to meet growing intra-regional final demand. While the region remains open to global trade and investment, leveraging on intra-regional demand would improve the resilience of the region as a whole against external shocks such as protectionism. The ample resources and diversity in development within the Asean+3 region is a source of strength.
Our region has also come together to channel our efforts and resources into safeguarding regional financial stability, which is the foundation upon which we can pursue further growth and integration. The Chiang Mai Initiative Multilateralisation or CMIM stands at the centre of our regional financial safety net. In the last few years, the operational readiness of the CMIM has been greatly enhanced by conducting test runs, including with the International Monetary Fund, and updating our operational guidelines. The first CMIM Periodic Review is about to be concluded and will stand as another milestone in strengthening our regional safety net and in regional financial cooperation.
Junhong Chang is director of the Asean+3 Macroeconomic Research Office (AMRO)