Academic journal article
By Park, Jong H.
Business Economics , Vol. 27, No. 4
DURING THE PAST three decades, the world economy has witnessed profound transformations of historical dimensions. Best known among them has been the shift of both economic activities and international economic policy from the Atlantic to the Pacific basin countries. This shift has started with the emergence of Japan as a Pacific as well as a world economic power and the remarkable success of industrialization in East Asian countries such as Korea, Taiwan, Singapore and Hong Kong. At the same time, the rise of a unified Europe has accentuated the "splitting" of the Atlantic basin, resulting in the formation of a North American free trade area (U.S.-Canada Free Trade Agreement). Thus, the world economy appears to be disintegrating into three giant trading blocs dominated by the Big Three: the U.S., the European Community, and Japan. Such trading blocs could easily invite escalation in trade conflicts and ultimately trade wars among these blocs, only to bring about a decline in the standards of living for all.
TRENDS TOWARD REGIONAL TRADING BLOCS
Along with Europe 1992, the recent trend towards regional economic integration has been further accentuated by several important developments. Among them has been the emergence of Japan and the East Asian NICs as major economic powers in the world and the continued decline in the U.S. economic position vis-a-vis both Europe and Pacific Asia. Japan has now become a dominant economic superpower in Pacific Asia and beyond. Given the diversity of history, culture and tradition among the Asian countries, however, it would take a long time before Japan could be accepted as a "trusted" leader representing the interests of the Pacific Asian countries. Accordingly, at least on the surface, it seems unlikely that an East Asian trading bloc centered upon Japan could materialize in the near future.
However, the continued decline in the U.S. economic position vis-a-vis both Europe and Pacific Asia could produce further pressures for new trade controls, restrictions on foreign investment, and a move away from international economic cooperation. The end of the Cold War could only heighten the prospect of trade wars among the Big Three, simply because now the security imperative in the East-West conflict is diminished. With the security issues no longer serving as a major determinant of postwar international relations (and with economic matters now in the driver's seat), the U.S.-Japan economic problem could escalate into greater conflict. Moreover, if the European Community were to become more protectionist and turn aggressively inward, the U.S. could face a two-front trade war.(1)
A series of deadlocks in the Uruguay Round of GATT talks (and therefore, little prospect of preventing trade multilateralism from collapsing) has only encouraged the bilateral approach in trade policy for both the U.S. and the EC. The EC's collaboration with the European Free Trade Association (EFTA) and the collapse of communist regimes in Eastern Europe, which is going to encourage other European countries to join the EC, can only help form a huge European economic bloc or European Economic Area (EEA). At the same time, the U.S.-Canada Free Trade Agreement is likely to include Mexico to form a North American Free Trade Agreement (NAFTA), and possibly other Latin American countries to expand into a giant American Economic Area (AEA). Given these developments, it is not surprising that there has been much discussion recently about the formation of a trading bloc in East Asia, or more broadly in the Asia-Pacific region. Such a move, if materialized, could ultimately divide the world economy into three giant (and, in all probability, discriminatory) trading blocs.(2)
POTENTIAL FOR AN ASIA-PACIFIC TRADING BLOC
Two forms of a potential East Asian trading bloc have been suggested: one centered upon Japan and the other, much broader in scope, encompassing both Japan and the United States at the core with other countries in the Pacific Basin. …