strategic asia 2010 11 asia s rising power and America s Continued Purpose Edited by Ashley J. Tellis, Andrew Marble, and Travis Tanner Economic Performance Asia and the World Economy in 2030: Growth, Integration, and Governance Peter A. Petri restrictions on use: This PDF is provided for the use of authorized recipients only. For specific terms of use, please contact <publications@nbr.org>. To purchase the print volume Strategic Asia 2010 11: Asia s Rising Power and America s Continued Purpose, in which this chapter appears, please visit <http://www.nbr.org> or contact <orders@nbr.org>.
executive summary The chapter examines Asia s likely economic expansion through 2030 and explores the consequences for U.S. policy. main argument: Between 1990 and 2030, Asia and the West (defined as the U.S. and Europe) will have roughly traded places in terms of output and other measures of economic mass. Asia s rise will require adjustments around the world but should have a conservative influence on the world system. Given the region s stake in global interdependence and pragmatic focus on development, Asia should help to sustain existing institutions, while also resisting new, more restrictive agreements. Commercial, institutional, and people-to-people contacts will expand and mitigate tensions. policy implications: The U.S. can prepare for this transition by investing in technology, education, and exports, and by putting its finances on a sound footing. With complementary reforms in Asia, these initiatives should help to reorient U.S. production and employment toward rapidly growing Asian markets. Deepening trans-pacific linkages should become Washington s highest international economic policy priority. Asian regional integration is a natural by-product of Asia s rise, and trans-pacific partnerships can help to keep Asian cooperation outward-looking rather than turning discriminatory. As the established power that will benefit most from Asia s integration into the global economy, the U.S. is well positioned to lead the search for global institutions that deliver effective cooperation and reflect Asia s rise. Asia-U.S. relations will face major opportunities in 2011 as a legislative window opens in the U.S. for passing the Korea-U.S. Free Trade Agreement and making progress on the Trans-Pacific Partnership. As the host of APEC in 2011, the U.S. also has an excellent platform for promoting the benefits of trans-pacific ties to both sides.
Economic Performance Asia and the World Economy in 2030: Growth, Integration, and Governance Peter A. Petri Between 1990 and 2030, in the span of one generation, a stylized East, consisting of the major Asian economies, and West, consisting of the United States and the European Union (EU), will have roughly traded places in purchasing power GDP and other measures of economic mass. The world is already adjusting, as reflected by the group of twenty (G-20) replacing the group of eight (G-8), the proliferation of Asian cooperative mechanisms, and the focus of attention on bilateral meetings between the United States and China and other Asian countries. How will world economic institutions change as they acquire Asian characteristics? The world s emerging economic leadership is far more heterogeneous than in past transitions of economic power: put simply, Asia will become dominant before it becomes rich. The functional implications of these shifts are unclear. Large changes in regional weights might bring radical changes in the institutions and mechanisms of world trade and finance. Or they might not: if the rising and declining powers generally benefit from the existing economic framework, or at least cannot agree on alternatives, the transition could proceed with modest adjustments within the system, in variables such as the direction of trade and investment and voting shares in global institutions. This chapter assesses the scope of likely changes and, in that context, considers options for U.S. policy. The preeminent example of revolutionary change in global institutions is the reinvention of the international economic system at the end of World War II. In three consequential weeks in July 1944, the United States and its Peter A. Petri is the Carl J. Shapiro Professor of International Finance at the International Business School at Brandeis University and a Senior Fellow at the East-West Center. He can be reached at <ppetri@brandeis.edu>.
48 Strategic Asia 2010 11 allies created a dazzling array of new institutions, including the International Monetary Fund (IMF), the World Bank, and mechanisms for liberalizing trade (which eventually became the World Trade Organization, or WTO). Evolutionary change, however, is more common. In the Bretton Woods era, the rise of Europe, Japan, and the Asian tigers, also representing a substantial redistribution of economic mass, did not lead to systemic change. Adjustments occurred notably in the exchange rate system without altering basic institutions. If anything, the success of the miracle economies enhanced U.S. efforts to build a market-based, liberal economic order. The Bretton Woods institutions prospered, and the United States shared leadership of them comfortably with rising powers. Eight rounds of trade negotiations were successfully concluded. Despite disagreements, major stakeholders sustained the system even as their roles changed within it. Will Asia s rise, the salient trend of the new century, lead to revolutionary or evolutionary change? At least three outcomes can be envisioned: Rules and institutions will be strengthened, facilitating deeper integration, and Asia s rising economies will continue to converge toward liberal norms. This scenario would sustain trade and investment, stimulate innovation and specialization, and provide opportunities for the United States to participate in Asian growth. Norms for international behavior will be relaxed or ignored, leading to more disparate national practices. For example, Asia might discriminate against non-regional partners, relax intellectual property enforcement, pursue pollution-intensive growth, and manage currencies. This path would disadvantage smaller countries and rulesoriented countries such as the United States. Protectionist rhetoric and initiatives will rise and the world economy will segment into blocs separated by trade and financial barriers. Some regions could prosper initially, but general uncertainty would dampen investment and growth. This scenario, though unlikely, would undermine global prosperity and peace. Globalization is the elephant in the room. In contrast to previous transitions of economic power, today s shifts are taking place alongside and as a result of deepening economic interdependence. In the liberal Bretton Woods era, Asian and Western economies converged on strategies that are predicated on interdependence. The largest emerging economies China, India, and Indonesia are early in their catch-up and need economic integration to continue to grow. The advanced economies, especially the United States, are deeply engaged in and benefit from integration, although
Petri Economic Performance 49 governments face urgent pressures to divide the gains more fairly. This is a positive-sum game: Asia is rising relative to the West, not at the expense of the West. For these reasons, Asia is likely to become a conservative force in the global economy. Assuming that Asian policymakers remain motivated by rational economic interests, they will criticize the system they inherit but will be cautious about changing it. For decades to come, Asian policymakers will face huge challenges at home giant, poor, diverse, and aging populations, not to mention internal political tensions and will need a stable global environment to manage these challenges. Policymakers will shade policies to national advantage as all countries do but will participate in and support global institutions. They will act when the global system needs to be saved (as in the frightening fall of 2008) and resist efforts to make rules more complex or restrictive. They will not rock the boat. Moreover, it is in the United States interest to reinforce this trend, guiding the future to somewhere between the first and second scenarios. The chapter begins by reviewing Asia s economic rise and the region s stake in the global system. It then considers how recent crises shaped Asia s prospects and explores the strategic interests of the United States. Political and security environments willing, Asia and the United States should be able to cooperate with benefits to both. These bets would be off in a hostile climate in which countries seek to impede each other s progress for example, for fear that a rival s success will lead to military confrontation. Asia Rises Using Angus Maddison s well-known estimates, 1 after dominating the world economy until the early 1800s, Asia fell into more than a century of relative economic decline. 2 Since World War II, however, Asia has grown more than twice as fast as the rest of the world, even allowing for stretches of poor performance in countries such as Maoist China and pre-reform India. Asian development is again setting global records. Seven of the ten 1 Angus Maddison, The World Economy: A Millennial Perspective (Paris: Organisation for Economic Co-operation and Development [OECD], 2001). 2 A narrow, pragmatic definition of Asia is used here essentially East Asia and India to facilitate data collection and analysis, based on Asian Development Bank, Emerging Asian Regionalism: A Partnership for Shared Prosperity (Manila: Asian Development Bank, 2008). The study s integrating Asia concept defines Asia as including the ten ASEAN countries plus China, Hong Kong, Japan, South Korea, Taiwan, and India. These economies have strong linkages, significant systemic influence, and better data. In some data references, an even narrower twelve-economy definition is used, omitting the four smaller ASEAN economies (Brunei, Cambodia, Laos, and Myanmar). These definitions account for 90% 95% of the economic activity of fully inclusive definitions of Asia.