Regional solutions within Asia, reinforced by boosting inter-regional trade and investment with Europe as an engine of global growth, can help counter the threats to globalization.
At the moment much is being written about the possible end of globalization as a driver of global growth. Although this may be an exaggerated notion, it is important not to be complacent about the threats to globalization. In many countries people are concerned about growing inequality and job insecurity, which many attribute to globalization. The growing success of radical left- and right-wing movements in recent elections and the increasing political pressure toward trade protectionism in many countries are signs of growing fears about globalization.
The challenges of finding global solutions. Many experts suggest that it is necessary to counter the risks to globalization through global efforts. The G20 is seeking, among other things, to promote a synergy of global infrastructure programs, promote policy coordination to support open trade, and developing diversified financing instruments for small and medium-sized enterprises (SMEs). However, implementing solutions is proving to be increasingly challenging at the global level in the current climate. Thus—and notwithstanding the fact that growth of global trade will remain unchanged in 2016 at 2.8%—the World Trade Organization’s Trade Facilitation Agreement, which was concluded in 2013, is yet to be fully ratified and implemented by members.
Regional solutions. The question therefore is whether regional solutions can act as key building blocks of subsequent global solutions. Many critics of regional solutions point to the European refugee and Eurozone crisis, and the potential impact of the projected slowing of the Chinese economy to 6.5% in 2016 and 6.3% in 2017, given that it has been an important force in powering global trade and investment.
Asia’s growth can continue to be driven by the restructuring of the Chinese economy, the rapid growth of the Indian economy—projected to increase to 7.4% in 2016, and 7.8% in 2017—and the continued growth of economies in the Association of Southeast Asian Nations (ASEAN), projected on average to be 4.5% in 2016 as the ASEAN Economic Community integration proceeds. But given the risks to regional growth in Asia, there is a need for structural reforms related to productivity and business efficiency, which can be fostered through various regional integration avenues. These include decisive reduction of barriers to intra-regional trade and foreign direct investment (FDI) flows, as well as cross-border infrastructure to support intra-regional movement of goods and people. Given continued differences of opinion between countries, regional integration efforts will require ADB to exercise its longstanding role of “honest broker” for promoting regional cooperation and integration. Asia can thereby act as a regional motor of inter- regional trade and global growth.
Inter-regional cooperation. Asia’s guiding principle of ‘open regionalism’ also means that Asia is open to cooperation with other regions, like Europe, to reinforce Asian regionalism. The deepening integration of Asian markets can help promote cross-border FDI flows, including from Europe. Although manufactured goods trade growth has slowed between Asia and Europe, more digital trade could bring substantial cross-border trade benefits to both regions. European markets are among the most important in cross-border e-commerce, with the UK and Germany two of the 6 biggest e-commerce markets). Again, ADB can play a potentially critical role in promoting the inter-regional digital market through investments in regional energy and ICT connectivity infrastructure. The digital trade market can thus be termed a ‘democratic’ market where SMEs can gain easier access to export markets. Helping SMEs gain effective access to trade and investment both through initiatives such as ADB’s Trade Finance Program can mitigate inequalities and boost employment.
All of the above points to the potential of regional solutions within Asia, reinforced by boosting inter-regional trade and investment between Asia and Europe as an engine of global growth and to counter the threats to globalization.