54.3 F
San Diego
Thursday, Mar 28, 2024
-Advertisement-

Asia’s Cohesion Could Spell Trouble for U.S. Markets

It’s very possible that in just a few years the financial shape and structure of Asia will evolve in dramatically different ways.

If handled properly, the emergence of a more tightly woven region able to work together in the face of currency and economic turbulence should prove a blessing for everyone.

Several factors are working behind the scenes to make this happen. For starters, you have the huge U.S. federal budget deficit and the correspondent weakening of the value of the American currency against many others. Swimming in a sea of denial, the Bush administration bills the weak dollar as good for U.S. exports (because they become cheap abroad) and explains away the current deficit as a temporary blip that will soon be eviscerated by growth (my view: more voodoo economics).

Another factor is Asia’s less-than-fond memories of the United States’ lassitude during the Asian financial crisis of 1997-98 that devastated many economies in the region. The Clinton administration is widely remembered as effectively sitting on its hands, rather than extending a helping hand. Worse yet, it left a huge mess, which originated with the currency crash in Thailand (a staunch Cold War ally), in the hands of the unfeeling International Monetary Fund. When the IMF was finished “solving” the crisis, rather brutally, it left the region in a faint fog of something along the order of mustard gas.

But I may be overstating the residual animosity for the West as a motive for a gradual, large-scale regional economic regrouping. In contrast to me, American political scientist Jennifer Amyx, in the current issue of Asia Pacific Issues (an invaluable periodical out of the East West Center in Honolulu) notes that: “Some observers continue to attribute such cooperation to sharpened antagonism between East Asia and the West since the Asian financial crisis. But this view overlooks a key internal driver: China’s shift to a more proactive stance toward regional cooperation.”

The economic resurrection of China has led to a huge change in the psychology of the region. When Japan sought to create a sort of regional IMF , run by Tokyo , during the regional crisis some eight years ago, the reaction from the region was generally tentative (and the reaction from a threatened Washington was even more negative). The region, having suffered horrifically from Tokyo’s wartime campaign, wasn’t quite psychologically ready to accept Japanese leadership on such a bold scale.

But the pan-Asian concept, vague as it was, addressed a deep regional need: the necessity to come together on issues such as currency volatility, a regional bond market and other measures that could give Asia greater financial stability, both within the region and to protect against gale-force winds from elsewhere.

A very worrisome example of such a gale force would be the further collapse of the U.S. dollar or some abrupt cave in the U.S. economy. Nobody in Asia or anywhere else, for that matter (outside perhaps the anti-American band of ideologues hanging out in the hills of Afghanistan or Pakistan) wants to see that. Economies these days are increasingly joined at the hip, and a serious downdraft of the American economy would hurt everybody, especially Asia, and particularly China.

Indeed, China especially would benefit from a regional coming-together, bringing new investment into the country and improving for its exports the economic conditions of neighboring regional markets. Again, professor Amyx: “Whereas China opposed the informal 1997 (Japanese) proposal to create a regional monetary fund, China supports the creation of a regional currency swap network and enthusiastically embraces the operational task topping the ASEAN+3 agenda today: the Asian Bond Markets Initiative.”

The beauty for China of this trend toward cooperation is that while it is in no position yet to either contribute substantially to such a fund or even lead it, it could immediately benefit from it. The beauty for the region is that for once it is possible to imagine not only Japan and China on the same side of such a major issue, but all of Asia as well.

The creation of any kind of regional economic or financial structure will not come overnight and, to be sure, it may never come at all. But substantial impediments to its realization seem to be falling by the wayside rather quickly. Asia may never become a European Union per se; but the bad old days of extreme Asian disunion and indifference to neighbors may well be numbered.

It’s a historically important trend that seems to be in the making.


Tom Plate is a UCLA professor, former editorial page editor of the

Los Angeles Times

and a member of the Pacific Council on International Policy.

-Advertisement-

Featured Articles

-Advertisement-
-Advertisement-

Related Articles

-Advertisement-
-Advertisement-
-Advertisement-