As global trade rebounds, the economies from East Asian and Pacific countries are increasing at a faster pace than their Western counterparts. China is fully expected to be the leader of this rise.
While part of this is because China is the largest economy in the region, another perhaps lesser-known reason is the fact that China (as well as other East Asian nations such as Vietnam) has not suffered from lockdowns and economic restrictions due to Covid to the same degree that Western countries have.
In this article, we’ll dive into the increase in trade during the first half of 2021 from Asia in comparison to their Western counterparts. We will also talk about whether China has a stronger grip on world trade than ever before due to the pandemic…or if the evidence alternatively suggests that China’s position as a trade leader may be nearing its peak instead.
A Return to Normal Trade Levels in Asia
Businesses based out of East Asian countries have good reason to be optimistic as global trade starts to return to pre-pandemic levels. It’s clear that Asian economies have not been hit to the same level as countries in the rest of the world have.
According to research conducted by the East Asia Forum, the digital economy is projected to add over $1 trillion to the Asian economy over the next decade, the most of any region in the world. And it’s not just projections about the future that are favorable to Asia. The results already speak for themselves.
For instance, total export volumes from East Asian countries for the first quarter of 2021 were actually up 15.4% more than what they were in the first quarter of 2019. Meanwhile, exports have collapsed amongst nations in other regions of the world. Europe has reported a 2.9% decline in exports when compared to two years ago, with an even sharper decline of 11.2% and 19.9% for Africa and the Middle East respectively.
There are two significant reasons why East Asian economies have rebounded so quickly in comparison to the rest of the world. The first is because they have largely followed China’s lead. The World Bank has forecasted that China’s economy will expand by 8.1% by the end of this year, which has helped carry an increase of 4.4% for other closely-tied countries in the East Asian and Pacific region as a whole.
Then there’s the fact that Asian nations, including China, did not have to endure lockdowns and economic restrictions to the same level that the United States or Europe did. In the summer of 2020, for instance, it was widely reported how a massive pool party was held in none other than Wuhan while Western countries remained under strict lockdowns that were tightly enforced.
This year, Western countries like the United States continue to feel the negative effects of the imposed economic restrictions in the form of a lower participation rate in the labor force, severe non-labor shortages (such as in the form of lumber and semiconductors), higher inflation, and costlier prices for basic goods.
This naturally begs the question:
Has The West Truly Fallen Behind?
In Western countries like the United States, Canada, and the United Kingdom, small businesses are perhaps the worst affected of all. Small businesses are responsible for a majority of private-sector employment and have also been the most severely hit.
According to the Business Resiliency During Covid-19 study conducted by Freshbooks, 77% of surveyed business owners stated that they were either not confident or only somewhat confident in the state of their businesses. Among the reasons cited included a loss of income, reduced cash flow, and not having enough staff or resources to keep operations up and running.
Of course, only time will tell if Western economies have truly fallen behind their Western counterparts. The United States has long been a leader in the global economy and even now remains the world’s largest economy when measured by nominal GDP…though China is now in a close second.
It’s also concerning that many businesses do not appear to have the appropriate financial security measures in place in the event of further financial or personal disaster. For example, in the same Business Resiliency survey, nearly a quarter of surveyed business owners indicated that they did not have any kind of an insurance policy in place.
Business owners who have taken out large business loans or a line of credit, for instance, would benefit strongly from a comprehensive insurance plan that covers most or all of the financial damages in the event of defaulting on the debt from a lack of incoming cash flow, or worse, in their death that would essentially transfer the liabilities to their family members.
When you combine the fact that most business owners do not have an insurance policy as a cushion in place with the realities that many of those same owners have burnt through their emergency funds during the lockdown and that Covid relief packages from the Federal government are set to expire (or have already), it’s easy to see how the situation is a bit dire.
In the short term at least, it’s clear that the economies of East Asian countries, spearheaded by China, have emerged out of the pandemic more favorably than the countries of the West.
But is China’s rise set to last? And if not, what does this mean for the rest of East Asia?
Has China’s Grip Over World Trade Peaked?
China has been the largest exporter of goods worldwide since 2009, and it became the world’s largest trading nation in 2013. Both of these positions had previously been held by the United States.
In other words, China as a trading leader on the world stage is nothing new, and this is also why the faster recovery of Asian economies versus Western countries should not be surprising. More than half of all e-commerce transactions in the world are now coming out of China, which likewise has borne well for the Asian market.
But there are many who believe that China is nearing the peak of its current economic capacity, and with it, perhaps the rest of Asia as well. A report last spring by UNCTAD (the United Nations Conference on Trade and Development) argued that while China is almost certain to remain as the leading exporter in the world for the next few years, there are several inherent vulnerabilities that threaten to cut its rise a bit short.
Among the reasons cited for this include simmering geopolitical tensions that hinder social development, rising labor costs that could lead to production processes either being automated or transferred elsewhere, increased tariffs on Chinese exports from the U.S. and EU, and major companies pulling the production of their products out of China completely.
As an example of the last mentioned reason, electronics conglomerate Samsung announced last year that they would cease manufacturing computers and phones in China in favor of other Asian countries like Vietnam and India. This decision was made in the face of both rising costs to manufacture in China and increasing international tensions.
Each of the aforementioned factors means that China could become more dependent on domestic rather than international demand, and therefore stands to chip away at China’s competitiveness on the global scale if those factors don’t change.
And the spread of the Delta variant has also spurred new lockdowns in China and other Asian countries, which means it’s almost certain that we will see new disruption to Asian supply chains, and particularly in regards to consumer goods and high tech equipment.
In other words, even though East Asia may have taken the lead in economic recovery and trade growth for now, it’s still far from certain that this will last over the long term.
Has the pandemic truly created a major economic realignment to global trade and the world order, or are the shifts we are seeing now temporary?
The evidence is clear that the economies of East Asian companies have recovered from the pandemic faster than the United States, Canada, or Europe. But those economies have also largely followed the lead set by China’s current dominance as a world trade leader, and vulnerabilities in China’s economy mean it’s easily possible the country’s grip over world trade could start to slip.