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Foreword
- ISEAS–Yusof Ishak Institute
- Chapter
- Additional Information
Foreword The symposium on which this book is based was held in the darkest days of the U.S.-originated global financial crisis. In the wake of the collapse of Lehman Brothers, demands were frozen and economies with high export dependency experienced radical contraction. No one knew how long this would last and what the consequences would be. In a time of crisis we tend to speculate on known unknowns. We knew that the U.S. market would not be in a position to pull the East Asian economies along from the demand side. The triangular trade system of the United States, China, and the rest of Asia that had evolved after the 1997–98 Asian economic crisis would have to undergo radical transformations. With U.S. demand frozen, China’s exports to the United States declined, which, in turn, led to the contraction of China’s imports of intermediate and capital goods from the rest of Asia including Japan, South Korea, Taiwan, and ASEAN countries. This is the reason economists and business people called for turning regional demands into “domestic demands”, in the hope that China would emerge as the market to pull the rest of Asia as well as the world out of this crisis. Recalling the Great Depression of the 1930s, many of us were aware that hard times would breed nasty politics. Signs were there in the form of trade protectionism, currency manipulation, the maltreatment of illegal migrants, and the rise of political parties calling for policies to protect very narrowly defined “national interests”. viii Foreword And yet nothing as serious as the worst-case scenario came to pass. The United States and the European Union recovered economically, and while they are a lot weaker than we hoped, we can be far more optimistic about the future now than in December 2008. Yet two things remain. First, the transformation of East Asian triangular trade still has a long way to go. Recent IDE-JETRO research shows that China has upgraded its intermediate and capital goods production while flooding the countries in its vicinities with inexpensive final products, a move that compels Japan, South Korea, and Taiwan to upgrade their industries while posing a threat to ASEAN economies. The Indonesian Government’s call for review of the ASEAN-China FTA is a sign of this increasing tension. Although some economists argue that higher wages Chinese workers are now demanding will eventually translate into expansion of China’s domestic demand and increasing imports from its neighbours, this confluence has not yet happened. China’s expanding domestic demand is being met by China’s expanding domestic supply, with little spillover to ASEAN countries. Second and far more seriously, the United States, European Union, and Japan have accumulated huge debts, as highlighted by the debt crises in Portugal, Italy, Greece, and Spain. But, in fact, the more worrisome case is Japan, where debt is almost 200 per cent of the GDP and clearly unsustainable. The upper house election held in July 2010 demonstrated that the Japanese public did not want its government to raise the consumption tax. But the debt issue now looms large, and if the government is unable to do the job of tackling this issue, market forces will do so — more drastically and at a higher social and political cost. A time bomb is ticking, ever more loudly, and in the future we may look back at the present and say that the U.S.-led global financial crisis triggered the Japan-led crisis. Whether this imminent Japanese debt crisis will radically change the political and economic landscape of East Asia is a question that only ensuing events can answer. East Asia community building has emerged as a common agenda in the region because it promises a better arena for nurturing the politics of economic growth, which holds that the purpose of politics is to deliver economic growth, leading to the creation of employment, the rise of living standards, reduction of poverty, and the promise [184.73.56.98] Project MUSE (2024-03-29 08:10 GMT) Foreword ix of a better future. Community building is also an instrument by which states in China’s vicinities can productively and constructively engage China. The transformation of the East Asian regional system has been marked at each turn by a series of momentous events. War and the collapse of the British, Japanese, and other colonial empires in the 1940s; American defeat in Indochina in the 1970s; the Plaza Accord...