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Home > Blogs > Anthony Harrington > Asia, Europe and the US: not decoupling but recoupling

Asia, Europe and the US: not decoupling but recoupling

Asian economy | Asia, Europe and the US: not decoupling but recoupling Anthony Harrington

In 2008, east Asia accounted for getting on for a fifth (18%) of total global GDP, as against just 9% in 1990. The region’s rapid development and generally high rate of growth, particularly with respect to China, led to the “decoupling” debate.

This debate suggested, rather daftly when one recalls China’s reliance on exports – a reliance which requires sustained external demand for China’s economy to keep on trucking - that even if the West hit the wall, the East would be all right. The global crunch knocked that idea on the head since Asia took a hammering too.  However, the crunch and its aftermath caused economists at the Asia Development Bank to take a much closer look at the ties that bind East Asia to Europe and the US. The result is a rather good working paper which takes in the nine regional economies of the PCR, Hong Kong, Indonesia, Republic of Korea, Malaysia, Philippines, Singapore, Taipe and Thailand.

The authors point out that one reason why people were led to believe in the validity of the decoupling theory was the growing volume of intra-Asian trade. Although east Asia’s exports had grown to constitute more than a fifth of total global exports, some 42% of the region’s trade was among the member countries. That tended to reinforce the idea that it had a kind of self sufficiency.

Probably, the scale of the region’s exports also added credence to the decoupling theory. Exports grew from $419 billion in 1990 to $3.4 trillion by 2008. That’s a very big number and one could make an argument that even 40% of that number, in other words, the intra-Asia trade loop, might be big enough to be self sustaining. Perhaps when the history of what happened through the global downturn has been fully digested, it may be seen that the strength of intra-Asia trade did play a part in helping Asian economies to bounce back faster.

Then, of course, there is the continuing rise of the People’s Republic of China. The ADB authors point out that up to now the PRC has played a critical role, importing intermediate goods from the rest of east Asia and exporting the final assembly to destinations outside the region. However, this essentially speaks to a large, intra-regional production-sharing network, the vast majority of whose finished output is destined for external economies. No surprise then to find that a developed economy shock that flattens demand for imports is going to hammer east Asia.

What the paper also emphasises, however, is a new development, namely the increasingly globalised production network. “East Asia plays an increasingly important role as a supplier of intermediate goods for the advanced economies, while importing more of the final goods from these economies,” they note. The result? Re-coupling, not de-coupling, but to the ultimate benefit of all concerned:

 

“As East Asia becomes more integrated into the global production network, output co-movements between East Asia and the US/European economies would likely increase. This is also consistent with our earlier findings of “recoupling”.” 

East Asia’s trade with Europe is growing, up from 13.3% a few years ago, to 20% now, just about on a par with the US share of the region’s trade, which has been stable at 20.2% for some years. As the authors observe: “Greater trade linkages between Asia and Europe may help reduce excessive reliance of global trade on US consumers.”

Further reading on the Asian economy and global trade:




Tags: Asia , China , decoupling , East Asia , exports , intra regional trade , recoupling
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