The Integration of Western and Eastern Trade-Blocs
By JC Collins
Last week a special United States-ASEAN summit was held in California. The purpose of the meeting was to align trade strategies and have all members of the ASEAN trade bloc join with the Trans-Pacific Partnership.
In October of 2015 I wrote a piece titled TPP and the AEC – Parallel Trade Agreements. In that post we reviewed how the TPP and the ASEAN Economic Community were two parts of the one hinge which acted as the point of integration between the United States and China within the multilateral monetary framework.
From that post:
“There is as much confusion and misinformation about the relationship between the Trans-Pacific Partnership (TPP) and the ASEAN Economic Community (AEC) as there has been regarding the integrated relationship between the International Monetary Fund and the Chiang-Mai Initiative Multilateral, and to a larger extent, the BRICS led institutions.”
That opening statement is loaded with what has now become accurate conclusions.
First, the obviousness of last week’s meetings confirms the working relationship between the TPP and AEC, as previously defined here on POM.
Second, three days ago in the post Goldman Sachs to Support BRICS Development Bank we discussed how the BRICS institutions are in fact being integrated within the larger monetary framework, which consists of both western and eastern institutions.
Third, in the post Meet the Asian Monetary Fund we reviewed how the Chiang-Mai Initiative Multilateral (CMIM) would transition into a functioning Asian Monetary Fund, which would become integrated into the larger and more macro International Monetary Fund.
This evolution and process has been more defined on the website of the ASEAN+3 Macroeconomic Research Office (AMRO). The mission statement of AMRO is as follows:
“AMRO’s purpose is to contribute to securing the economic and financial stability of the region through conducting regional economic surveillance and supporting the implementation of the CMIM.”
This year is morphing into a major turning point for the international monetary and financial systems. The transition from the unipolar dollar based framework to the multi-currency framework will redirect global capital flows. The intent is to rebalance the international system and increase global growth.
The meeting last week between the ASEAN members and the United States serves as notice to any who still doubt the reality of this emerging framework. Negotiations are still taking place on many aspects of this system, but the willingness of all nations to work together on solutions should be obvious.
Chinese Commerce Minister Gao Huchena said last week that they “do not see the TPP as directed against China, nor do we think it is antagonistic to the RECP”.
The RECP is a reference to the China-proposed belt and road initiative called the Regional Comprehensive Economic Partnership, which, along with the AEC, is meant to promote and define the economic and trade frameworks which will govern the region in the coming years.
The interesting part of all of these trade agreements and economic working groups is that the penultimate goal of global integration appears to be the main objective, regardless of ideology or differences in socioeconomics.
As an example, the TPP is meant to provide Asian countries with a solution to the fact that China, the largest trading partner in the region, mainly consumes raw materials and low-grade products. Though this may change in the coming years as China moves more towards a consumption based economic model, the TPP will serve the purpose of boosting advanced industry for the other ASEAN members.
ASEAN members of the AEC are aware of the fact that they need to depend more than just on China to promote growth and expand trade. Sustainable global growth will require trade amongst all nations, which is why China could also join the TPP, and is in fact promoting the TPP to the AEC nations.
More pieces of the multilateral monetary framework continue to fall into place. The path forward has been laid out in previous POM articles. Weaving all those past posts together with the forthcoming realities will encourage and support further learnings and understanding of the multilateral framework, and how it is emerging from the collapsing timbers of the old framework. – JC