From politicians to traders, there is a growing sense in Asia that, after four years of economic upheaval in the West, prosperity will require less dependence on traditional export markets and even more on regional cooperation.
The much-lauded U.S.-South Korea free trade agreement, signed by President Obama last fall and scheduled to take effect this year, underscores the shift in emphasis. Under the FTA, some 95 percent of bilateral trade will become duty free within five years, and most remaining tariffs will be eliminated within 10 years.
U.S. officials heralded the deal as the biggest bilateral trade deal the country has signed in almost two decades. But in Asia, and in South Korea itself, there are even larger market opportunities than the U.S. in terms of trading potential.
Bae Jae-Hoon, CEO of Korea-based third-party logistics operator Pantos Logistics, is a lot less enthused by the FTA than his country’s politicians, who some say were more pleased with the geopolitical message sent by the deal than the economic merits.
His blunt assessment was the South Korea-U.S. FTA promises far less in the flow of trade than a proposed agreement with China. If China’s tax were abolished, he said, there would be a 10 percent increase in profits on Korean goods exported to China.
“When we consider U.S. and EU import tariffs to be consecutively 3.5 percent and 5.6 percent, the effect of decreased taxation due to a Korea-China FTA agreement shall be much more effective compared to Korea-U.S. or a Korea-EU FTA,” said Jae-Hoon.
“There are doubts whether (the South Korea-U.S. FTA) will be of any benefit at all, since most of the products that will be traded between the two countries are already free-of-tariff products. On the whole, the effect that FTA agreement will have on the logistics market is very small.”
While economists discuss whether the economies of “East” and “West” are in the process of decoupling, and whether Asia’s burgeoning domestic markets can provide sufficient demand when mainstay export markets are bearish, there’s no denying Asia’s sense of confidence. Still, there are real concerns over the impact a stumbling U.S. recovery and Europe’s economic and political paralysis could have globally.
Certainly, Jae-Hoon’s reasoning is increasingly common in Asia and firmly rooted in economic pragmatism.
Take, for example, the owner of a midsize Indonesia-based furniture supplier. After spending 20 years selling to Europe and the U.S., he said the 2008-2009 global financial crisis left a lasting impression, and he is convinced his company’s future is in Asia.
“I source and build here already,” he explained on condition of anonymity. “In Europe, I’ve had a few buyers go bust, and there is that uncertainty over the currency as well. “There is an appetite for Western-style products in the cities, in Singapore and Hong Kong and other big centers. Consumer demand is growing and changing in Asia. That just seems to be the way of it.”
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His business strategy is increasingly grounded in macroeconomic reality; the key trading partners for most Asian countries are in the region rather than in Europe or the Americas. And, in stark contrast to the West, where politicians armed with protectionist policies all too often find an audience, this growing sense of economic self-determination is being bolstered and accelerated by a slew of bilateral and multilateral trade agreements signed by politicians eager to embrace economic liberalism, if not democracy.
Asked to identify a trading regulation that provides most cause for optimism in 2012, Richard Strollo, managing director for Southeast Asia at Philadelphia-based global logistics provider BDP International, pointed to a regional initiative — Indonesia becoming the final country to sign the ASEAN-Australia-New Zealand free trade agreement earlier this month — rather than one that might boost business on major global trading lanes. “Some customers have already jumped in” on the ASEAN-Australian-New Zealand FTA, he said.
Although cautious on the global outlook, Strollo said he is confident about Asia. “Europe is a factor in the short term, and we’re all waiting for a sustainable recovery in the U.S.,” he said. “If Europe stumbles dramatically, then that brings the U.S. in. Asia is the bright spot in all this; we’re most optimistic in Asia, and intra-Asian lanes are some of our strongest and where we are focused most sharply.”
Comparative economic growth forecasts explain why transport providers and many of the multinationals they serve will be looking to Asia to boost their bottom lines in what looks set to be a tough year for all concerned. The World Bank this month reduced its euro-area forecast from 1.8 percent to a recessionary minus-0.3 percent, while U.S. GDP is expected to grow 2.2 percent this year and 2.4 percent in 2013.
By contrast, although Asia’s twin economic engines — China and India — are expected to lose some momentum in 2012, growth will still be impressive, rising 8.4 percent in the China and 6.5 percent in India. “After expanding by 9.7 percent in 2010, GDP in the East Asia and Pacific region grew an estimated 8.2 percent in 2011, but growth is projected to ease to 7.8 percent for both 2012 and 2013,” the World Bank said.
The expected slowdown in growth rates is linked primarily to exposure to world trade after total global volumes contracted at an annual rate of 8 percent in the quarter ending October, mainly because of a 17 percent drop in European imports and the fallout of flooding in Thailand, which had global supply chain implications.
“If the situation in Europe deteriorates sharply, global trade could fall by 5 percent or more, with serious implications for the very open East Asia region,” the World Bank warned.
But although Asia isn’t without its troubles, there is little dispute that this year and in the long term it will be the prime source of global economic growth. As Asians look to their own region for economic opportunity rather than the traditional powerhouses of the West, where does this leave the United States?
A look at U.S. container trade volume growth over the last decade underscores that, economically at least, the U.S. for some time has been facing West across the Pacific rather than gazing back, with historical pull, across the Atlantic.
But this economic reality hasn’t always been reflected in trade policy or political focus.
The attention deficit was addressed to some extent when the U.S. and a host of Pacific powers signed the Trans-Pacific Partnership in November. Designed to “enhance trade and investment,” the broad outline covers a range of supply chain and regulatory issues that should improve U.S. access to the world’s fastest-growing markets, although negotiations over the specifics will last at least a year.
“U.S. exports to this region are essential to the president’s goal of doubling U.S. exports in the next several years,” said Ben Rhodes, deputy national security adviser for strategic communications. “In fact, nearly all of the efforts that we’re going to be making toward that export goal take place in this part of the world.”
Obama said the TPP would help boost trade and jobs and enable the U.S. to “compete and win in the markets of the future.” Given just how critical Asia will be to U.S. and global prosperity in the coming years, it could prove to be one of his most salient statements.
Contact Mike King at firstname.lastname@example.org.