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1 February 2019

EAST ASIA’S DECOUPLING

ROLAND RAJAH

Heightened global trade tensions and the US desire to ‘decouple’ from the Chinese economy for national security reasons pose significant risks to East Asia’s export-driven growth model.

However, the latest data suggests East Asia is no longer so dependent on exporting to the West, with China in particular eclipsing the United States as the leading source of ‘final demand’ for the rest of the region’s exports.

This gives East Asia much greater room to manoeuvre, as regional integration is now a more viable platform for growth while US decoupling efforts will likely struggle to find traction in the region.

ABSTRACT

A decade ago, East Asia’s economies were largely geared towards serving Western export markets. Trade within the region was dominated by parts and components that went into products still primarily destined for the United States and Europe. But, as this working paper shows, recently updated data from the OECD suggests that is no longer the case. East Asia is now driving its own demand. Behind this development has been the huge expansion in Chinese demand, which has now eclipsed the United States as the leading source of ‘final demand’ for the rest of the region. As a result, East Asia is somewhat less vulnerable to rising US–China trade tensions than commonly thought. More importantly, regional integration efforts, including the Belt and Road Initiative, are now more viable platforms for securing future economic growth, even if the rest of the world turns inwards. The key question is whether these opportunities can be capitalised on by deepening economic integration. Finally, with China cementing itself at the core of East Asia’s heavily integrated economy, any US decoupling effort aimed at pushing other East Asian economies to forgo closer economic relations with China will inevitably struggle.

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