Stephen Olson on Trade, Economics, and Geo-politics in Asia

1 November 2013

Emerging markets from Latin America to Southeast Asia breathed an audible sigh of relief when the US Federal Reserve – contrary to most market expectations – refrained from initiating its much anticipated policy of "tapering" at its last FOMC meeting in September. Tapering would have in essence signaled the beginning of the end for the Fed's extraordinary and unprecedented stimulative effort known as Quantitative Easing. Through its monthly purchases of $85 billion in securities, the Fed has been pumping massive amounts of capital into the economy and keeping interest rates near zero – all in effort to spur economic activity in the sluggish post-global financial crisis environment.

The implications of QE, however, have been felt far beyond the shores of the US. Much of the capital pumped out by the Federal Reserve has ended up in emerging markets, in search of higher rates of return. Equity markets and various asset classes – real estate, in particular – have surged, especially in key growth markets in Southeast Asia. "Easy money" from the US has funded everything from condo developments and shopping malls, to generous government programs paid for with a credit card.

10 October 2013

President Obama's decision to cancel his scheduled trip to Asia to attend the APEC meetings in Indonesia, along with side trips to Brunei, Malaysia and the Philippines has caused tremendous consternation and hand-wringing on both sides of the Pacific amongst those who value strong US "influence" and "commitment" in the region.

Indeed, President Obama's absence does represent to at least some extent a missed opportunity to advance the US economic and strategic agenda in the region, and is certainly a disaster in terms of the bumbling image it projects of a dysfunctional US Government, unable to keep its own house in order -- let alone exercise any meaningful degree of influence abroad.

But all of this hubbub misses the essential point: The greatest threat to US influence in Asia is not a missed meeting in Bali. The real threat is a lackluster US economy, losing its competitive and innovative edge.

8 September 2013

ASEAN's appetite for pursuing a variety of regional or bilateral free trade agreements continues unabated. Negotiations on the ASEAN Economic Community 2015 continue to move forward, as does work on the Regional Comprehensive Economic Partnership, which brings together ASEAN with China, Japan, South Korea, India, Australia, and New Zealand. Several ASEAN members have joined, or are considering joining, the Trans-Pacific Partnership (TPP), and most ASEAN members have one or more bilateral FTAs in place. Thailand, for example, is in the process of negotiating an FTA with the EU.

Of course, legitimate questions can be raised over the extent to which these agreements will actually produce anything approaching true free trade. ASEAN's preference for voluntary compliance and less-than-stringent monitoring and enforcement – to say nothing of the wide discrepancies in development levels amongst ASEAN members -- means that a variety of barriers and restrictions are likely to remain in place. Realistically speaking, one should not expect to see an actual "economic community" in ASEAN any time in the foreseeable future.