Introduction
The United States is a major market for many products from around the world. They are a major import nation. Recently, the U.S. economy has been sluggish and opinions are mixed as to whether it is likely to turnaround any time soon (Long, 2016). The financial crisis in the United States and in other major markets means that medium-income economies can no longer depend on demand from the United States and higher income nations to support them (Foxley, 2010). In response, many regions have formed regional trade blocs to varying success. The biggest regional trade blocs that have emerged are Eastern Europe, East Asia, and Latin America (Foxley, 2010). This research will explore East Asian regional trade block and will support the thesis that this arrangement will is in danger if inequalities among members cannot be resolved.
Summary
Comparative advantages between China, Singapore, Thailand, Malaysia, Indonesia, and the Philippines have resulted in the formation of shifting networks as a means to expand export development (Foxley, 2010). The geographic proximity of these trading partners meant lower transportation costs, which gave them an advantage, especially when combined with the ability to reduce tariffs (Foxley, 2010). These shifting networks formed the early foundation of regional trade blocs. In 1976, ASEAN was formally established. Since that time, several other trade associations have formed including ASEAN Free Trade Association, and the Asian Industrial Corporation to promote the integration of national production networks (Foxley, 2010).
One of the problems that the ASEAN trade bloc has experienced is a lack of clear leadership, with China and Japan continually competing for the role (Foxley, 2010). China is emerging the dominant actor in the Asian trade arena (Foxley, 2010). One of the main challenges of the association is finding a way to eliminate shocks in a way that they do not devastate individual economies in the bloc (Foxley, 2010). Wealth disparity among trading partners is a central challenge in the formation of the agreement. The most recent agreement by this bloc involves ten countries and was designed to help eliminate the advantages of larger economies in the bloc. The countries involved include Cambodia, Brunei, Indonesia, Malaysia, Laos, Thailand, Philippines, and Vietnam (Otto and Moss, 2015).
Analysis
This new trade block does not include the giants, Japan and China. When combined, the economies of the countries involved are nearly $2.6 trillion. The agreement is expected to double that by the year 2030 (Otto and Moss, 2015). This agreement is viewed as a way to balance the economy of scale currently held by the Chinese (Otto and Moss, 2015). They do not plan to develop their own currency, but they do intend to reduce import tariffs and quotas (Otto and Moss, 2015). There are still many barriers to the bloc before it becomes mature, including language barriers (Otto and Moss, 2015). The bloc is designed to restore the balance of power and to give weaker nations the chance to compete against China.
ASEAN resulted in access to a combined market of 600 million people (Sellier, 2016). This is a decided advantage for smaller nations. If ASEAN can achieve the integration that it seeks, then it will create the world’s seventh largest economy (Sellier, 2016). The problem with this is that there are large disparities in the sized of the economies involved and the political structures (Sellier, 2016). This prevents them from smooth coordination among the various ministries, laws, and codes (Sellier, 2016). Another major challenge to the agreement is the free movement of labor between the countries (Sellier, 2016). This is another where the inequalities among the various partners might cause a hindrance to meeting the common goals. The problem is that highly skilled workers are located in pockets. There are millions of unskilled migrants who are marginalized and will not be able to participate in the new economic opportunities (Sellier, 2016). This could further increase inequalities among the various partners.
In order for a trade bloc to achieve the necessary integration, major inequalities must be resolved. This requires solid institutional structures that are inclusive of even the weakest members of the bloc. One example of this is the wide disparity between the trade of Myanmar and Singapore. Myanmar’s total trade was worth $23 billion and Singapore’s was worth $783 billion (Sellier, 2016). If ASEAN wishes to gain its position as a competitor to China, it will have to achieve higher levels of integration and equality (Sellier, 2016).
ASEAN has the advantage of being a major hub of manufacturing and global trade with 227 of the world’s largest companies housed in the region (Vinayak, Thompson, and Tonby, 2014). It is also one of the fastest growing consumer markets that seeks even greater expansion outside the region (Vinayak, Thompson, and Tonby, 2014). They have experienced rapid, stable growth since 2000, have experienced relatively low inflation at 2.8%, and experienced low growth volatility (Vinayak, Thompson, and Tonby, 2014). This is a strong foundation for growth in the future, but it can only continue if further integration is achieved. They have momentum, but cannot continue to enjoy them success unless they can find a way to achieve greater equality among the members.
The biggest challenge to the growth of ASEAN is China’s individual relationships with the individual countries. China is currently the world’s second largest economy (Salidjanova and Koch-Weser, 2015). One of the central issues is among poorer ASEAN countries, such as Vietnam, Burma, Cambodia, and Laos. These countries depend heavily on imports from China. They do not have as diverse set of trading partners as wealthier ASEAN nations (Salidjanova and Koch-Weser, 2015). ASEAN’s trade as a whole with China has gone from a surplus in 2010 to a deficit of $45 billion in 2013 (Salidjanova and Koch-Weser, 2015). These changing relationships have created a source of tension between China and the various trading partners, and among wealthy and poor ASEAN countries. The poor countries cannot afford to jeopardize their relationship with China and China is on the favorable side of the balance of power in the relationship (Salidjanova and Koch-Weser, 2015).
Conclusion
ASEAN and subsequent trade bloc agreements stemming from it create an opportunity to many smaller countries to be a part of a major world economic power. However, in order to achieve their goals, there are many economic and political disparities to resolve. The dependence of smaller nations on trade with China places them at a disadvantage to the wealthier nations. The advantage of a trade bloc is that weaker members have access to a larger market. This theoretically will lead to a more stable market for them in the future. Smaller nations are in a highly risky position, as they cannot afford to break ties, or risk losing China as a trading partner.
ASEAN has the potential to compete with China in the future, but in order to do this, they must be able to break their dependence on them and achieve more uniform market integration among the various ASEAN nations. Compared to a trade bloc where the partners are more or less equal, ASEAN has many challenges in integration to overcome. They must find a way to support weaker countries and to avoid the diffusion of technically skilled workers. They must find a way to achieve integration of the necessary institutions and structures. They must be able to dissolve gaps and to find a way to achieve greater equality among members. If they can find a way to achieve these tasks, they have the potential to became a major competitor with China. Their success depends on their ability to achieve a more equitable partnership.
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