Academic journal article East Asian Economic Review

Trade in Developing East Asia: How It Has Changed and Why It Matters

Academic journal article East Asian Economic Review

Trade in Developing East Asia: How It Has Changed and Why It Matters

Article excerpt

I.INTRODUCTION

East Asia has for long been a paragon of successful engagement in trade. Dramatic growth in exports, stimulated by openness to foreign investment, has rapidly expanded incomes and shrunk poverty. Sustaining this success, however, faces challenges. Some of these are global, notably technological change that may threaten the very model of labor intensive industrialization, and a backlash against globalization that may reduce access to some of the most important markets. How East Asia copes with these global challenges will depend on how it addresses three more proximate national and regional challenges, which are the focus of this paper. The first is the emergence of one East Asian country, China, as a global trade giant - accounting for nearly one-seventh of global exports and one-tenth of global imports - which is fundamentally altering the trading patterns and opportunities of its neighbors. The second is the asymmetric implementation of national reform - remarkable openness to goods trade and investment that coexists with relative restrictiveness of services policies - which is affecting the evolution of comparative advantage and productivity in each country. The third is the divergence between the relatively shallow and fragmented agreements that regulate the region's trade and investment and the growing importance of regional and global value chains as crucial drivers of productivity growth.

Developing East Asia's trade growth has been impressive in the aggregate but uneven across countries and sectors and over time. The region today accounts for about 15 percent of world trade, up from 6 percent in 1995. China, of course, stands out, with a 70 percent share today of the group's international trade. However, countries' trade performance diverged in the 2000s. First China's and then Vietnam and Cambodia's impressive growth in manufacturing exports, contrasted with the slower growth of earlier dynamos, Malaysia, Thailand and Indonesia, and there are now signs that China's manufacturing growth itself may be reaching a plateau. Mining products have dominated the trade growth of Mongolia and Myanmar (and to a lesser extent, Indonesia). Services trade growth has been impressive only in the Philippines, and services account on average for less than 20 percent of the region's total exports.1

Even though East Asia remains vulnerable to global developments, the stake in trade within the region is growing. East Asia outperformed the growth of the rest of the world, but the region has not been spared by the global trade slowdown that started in 2012. At the same time, regional trade among developing East Asian economies has progressively increased. Intra-developing East Asia trade was about 5 percent of world trade in the early 1990s and is close to 20 percent today. This trend reflects the shift towards China as the center of gravity of trade for these economies. For countries in the region, the share of exports to China ranges between 10 and 30 percent, and for Mongolia it is as high as 80 percent.

The countries in the region have taken divergent paths in response to China's emergence, depending on their stage of development and pattern of comparative advantage. Most of the relatively industrialized countries - Malaysia, Thailand, the Philippines and even Indonesia - have been hurt by direct competition at home and abroad from China in manufactured goods. But countries have also benefited: from increased Chinese demand, especially for services (e.g. Philippines, Thailand and the Lao People's Democratic Republic) and commodities (Indonesia, Myanmar, Lao PDR and Mongolia); from integration into China-linked value chains (Malaysia, Vietnam); and from relocation of Chinese production (Vietnam and Cambodia). Going forward, further integration with China will increase competitive pressures in final goods markets, but also provide better access to imported inputs and a growing demand for commodities and services. …

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