Ironically this trade growth could very well be sustained by US demand. If President Trump makes good on promises for a trillion-dollar fiscal stimulus, import demand cannot but rise (along with inflation). This will benefit raw material exporters in the Asia-Pacific like Australia, Indonesia, Malaysia and Thailand, and also the region more broadly, thanks to the complex supply chains that have evolved in recent years.
On the downside this means US border taxes could have unintended ripple effects, rather than hitting just China. However, the impact of such measures in Asia is unlikely to be as severe as it is in Mexico, which has seen a greater direct relocation of US production capacity. Also, ASEAN countries like Vietnam, which has evolved as a compelling investment destination in its own right as well as a “+1” solution to rising costs in China, are well placed to benefit even if the Sino-US trade relationship sours.
Considering the longer-term, regional integration looks set to continue even if the Trans Pacific Partnership (TPP) is truly finished. For one thing, there will be a lot more focus on China’s role as the champion of multilateral trade deals, through initiatives like the Regional Comprehensive Economic Partnership (RCEP), which includes China and the 10 members of ASEAN as well as the region’s other major economies: Japan, India, Australia, New Zealand and South Korea.
Admittedly RCEP is not as ambitious as the TPP in terms of “next generation” issues like cross-border digital services. But the fact that these are increasingly crucial to the region’s economies (as we’ve noted before), and that bodies like APEC have already established digital services principles that will be hard to roll back, means conditions are good for the continued growth in Asia of this kind of commerce.
Finally, it’s not just trade flows that dictate prosperity: cross-border investment of the type that Asia has typically welcomed plays a vast role. Putting aside for a moment the very real geopolitical issues that can complicate such matters, China’s transformation into an exporter of capital and owner of more productive assets outside its borders should help cement economic integration within the region.
This is a natural economic progression, as seen with Japan since the bubble years and South Korea more recently, and goes beyond Beijing’s short-term concerns about the impact of capital outflows on its currency. On the back of initiatives such as RCEP and One Belt, One Road, Chinese companies will be seeking opportunities abroad as the domestic economy matures. Ultimately cross-border investment will create more wealth for recipients than simple merchandise trade.
Of course, it doesn’t pay to be too Panglossian, and in a febrile political environment politics often trump economics (pun intended). But Asia remains in a good position to continue to reap the rewards of freer trade and investment flows.