Friday, January 29, 2010

A Chinese-led Greater East Asia Co-Prosperity Sphere?

As promised I've done some research on the China-Asean Free Trade Agreement (FTA) that came into effect on January 1, 2010. As it turns out, there are several reasons why it hasn't received much press.

The Financial Times has an excellent overview of the FTA and its implications for the nations that are party to it. Long story short, it'll lower tariffs in all the countries. The FT highlights some winners of the agreement, notably Indonesia and Vietnam who are large exporters of commodities to China. Essentially their goods will be taxed less when shipped to the PRC which means more business for those industries. However, The Economist accurately points out that tariffs between the Asean states and China have been on a declining trend for the past several years, making the FTA even less spectacular.

This is all well and good for China and the Asean members, however, I don't see it impacting trade with the E.U. or the U.S. all that much. Fact of that matter is that western countries are increasing the tariffs levied on Chinese imports as a result of China's currency manipulation and subsidies to various industries.

So the bottom line for my friend Asia is that the FTA received little attention for the following reasons: 1) tariffs have been on the decline prior to the FTA 2) it's only between a select few states and 3) it doesn't impact the major economies in Europe or the United States.

I'll probably put something up later today about how the FTA impacts Taiwan and how I think the Ma government should respond. I wrote a paper last semester about Taiwan's grand strategy and this FTA provided the bulk of of my discussion on Taiwan's economic priorities. Stay tuned!

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