COMPARATIVE ECONOMIC PLANNING

Trade Systems of East Asia

Official Hand-out and Readings

INTRODUCTION
The forces of economic globalization, technological change, and transnational population flow are rapidly
transforming the region, from bipolar strategic competition to a cooperative and diversified network. The
states of Northeast Asia also face many common challenges, including resource scarcity, threats to the
environment, and the stubborn persistence of strategic tensions amid flourishing economic cooperation.
With the acceleration of urbanization, transborder population movement has rapidly increased.
Industrialization and urbanization have contributed to the concentration of populations in megacities. In
2015, the populations of Tokyo, Shanghai, Beijing, and Osaka exceeded 20 million, with Seoul close
behind, and Ulaanbaatar, though not quite a megacity, exhibiting many of the same vulnerabilities. The
rise of megacities has brought problems in housing, electricity and water supplies, transportation, food
safety, public security, environmental degradation, and solid waste management.
Good day, I am Jaynalyn Malto, and I am here to present you the Trade Systems of East Asia.
Historical Background
In ancient times, regions of Asia had commercial relations among themselves as well as with parts of
Europe and Africa. In the earliest days nomadic peoples traded over considerable distances, using barter
as the medium of exchange. Particularly important in such trade were fine textiles, silk, gold and other
metals, various precious and semiprecious stones, and spices and aromatic products. Trade between
Europe and Asia expanded considerably during the Greek era (about the 4th century BCE), by which time
various land routes had been well established connecting Greece, via Anatolia (Asia Minor), with the
north-western part of the Indian subcontinent. Further development of land and sea routes from the
Mediterranean basin, especially to southern India, occurred during Roman times. This east-west trade
flourished in the first four centuries CE but was subject to considerable vicissitudes in later centuries.
During that period trade also expanded considerably to Southeast Asia and to China through what are
now Malaysia and Cambodia.
After Spain and Portugal, in the 15th century, became interested in discovering a direct sea route to Asia
—an interest that led to the European discovery of the Western Hemisphere—the era of the great
circumnavigators arrived in the 16th century. Portugal was one of the first countries to attempt to
establish a monopoly over the lucrative spice trade with the East, and it founded a network of trading
outposts in Asia. The Spanish, meanwhile, established control over the Philippines. The Dutch and the
British started similar enterprises at the beginning of the 17th century, each country establishing its own
East India Company. The British began by centring their activities on the Indian subcontinent and
extended their control to Burma (now Myanmar), Ceylon (now Sri Lanka), and Malaysia. The Dutch first
concentrated on Ceylon but later expanded into and concentrated on Southeast Asia, particularly
Indonesia. The French were able to establish only minor footholds on the Indian subcontinent, but
their 19th-century penetration of the Indochinese Peninsula was more successful. Over time these
European trading companies developed into colonial empires.
The East India companies of Europe came seeking the exotic products of Asia: silks, cottons, and
precious commodities such as spices and aromatic products. These products required the skilled labour
of weavers and farmers or soil and climatic conditions unique to the region.
As the East India companies developed and imposed colonial rule, a new pattern of trade emerged.
Generally speaking, the colonial countries became the exporters of raw materials and imported the
finished products from their colonial rulers. For example, Britain ceased importing finished cotton goods
from India and instead imported raw cotton to be spun and woven in the new industrial mills. Cotton cloth
was then exported back to India, where indigenous weavers lost their employment. Steel products from
cutlery to railway locomotives were exported to Asian countries from Europe. During that period tea and
tobacco also entered into international trade, and jute became a monopoly product of the Indian
subcontinent. After the British went to war with China to block Chinese efforts to ban opium imports,
opium was traded legally by British merchants from India to China and was a source of tax revenue
for the government of India. From the 17th to the second half of the 19th century, Japan had limited
trading relations primarily with Korea and China and prohibited trade with Western countries apart
from a small Dutch trading post in southern Japan.
The latter half of the 19th century and the early part of the 20th constituted the heyday of colonial
rule. By the first decade of the 20th century, Japan had emerged as a major military and naval power,
and it gradually developed into an important trading partner with the rest of the world. The era that
followed was that of the colonies’ struggle for political independence, which reached its climax
immediately after World War II. Less than two decades after the end of the war, the great British,
French, and Dutch empires had virtually ceased to exist in Asia.
After independence many countries in Asia sought to develop industries of their own to produce
substitutes for their former imports. This happened under both socialist and non-socialist regimes. A few
countries—Japan the most notable among them—lacking natural resources but endowed with an educated
labour force, opted for promoting new industrial production for export instead of import substitution. In
general this strategy has paid off better, particularly for Japan and the “four tigers”—Hong Kong, South
Korea, Taiwan, and Singapore. At the beginning of the 21st century nearly all countries were responding
to the globalization of production by promoting exports and opening domestic markets to international
competition to varying degrees. Such liberalization exposed those economies to the volatility of
international markets, and there were major currency collapses and episodes of capital flight in the late
1990s. Although most Asian economies had begun to recover by 2000, there was still a legacy of
unemployment, poverty, and resentment for many.

Contemporary Trade Patterns

In view of the division of labour that existed between the colonial countries and the metropolitan powers
in colonial days, it is not surprising that until the 1970s the economies of the independent countries of
Asia often were more competitive than complementary. For some countries intraregional exports have
amounted to only a small fraction of total exports. However, in East and Southeast Asia intraregional
trade has grown in importance. Japan has assumed a prominent role in Asian trade, and South Korea,
China, and Taiwan have also traded more heavily with other Asian countries. Because many of the
countries of East and Southeast Asia have maintained substantial trade surpluses and because those
regions as a whole have been net exporters, many of those countries have derived most of their imports
from other Asian countries, while their main export market has often been outside the region, often in the
United States.
JAPAN
The economy of Japan is a free-market, capitalist economy, similar to most Western countries. It's the
third-largest economy in the world, with particularly strong car and electronics manufacturing industries.
Like many developed economies, most of its gross domestic product (GDP) comes from the service
sector (73%), with most of the rest being a combination of industry (26%) and agriculture (1%). Japan has
little in the way of mining or other primary industry.
The Japanese favor free trade and are part of many trade organizations, including the Asia-Pacific
Economic Cooperation (APEC), the World Trade Organization (WTO), the Organization for Economic
Co-operation and Development (OECD), the G-20 and the G-8.
Japan's main exports are cars and machinery, semiconductors (for example, microchips), iron and steel
products, auto parts and plastics. They mostly export to China and the U.S. but also have significant
exports to South Korea and many other countries. Japan's main imports are oil, gas, clothes,
semiconductors and coal. They mostly import from China, the United States, Australia and Saudi Arabia.
CHINA
The economy of China is known as a socialist market economy, which involves a dominant state-owned
sector, operating in an open-market economy. Despite criticisms of socialist economies in the West,
China currently has the world's largest or second largest economy, depending on what measure you use.
It's also the fastest-growing economy in the world. Unlike many Western economies, less than half their
GDP is based in the service sector. Services account for 48% of GDP, followed by industry at 43% and
agriculture at 9% as of 2014. Much of the 43% for industry is manufacturing - China is the biggest
manufacturing economy in the world. China is also part of the WTO, APEC and the G-20. China has the
greatest value of exports of any nation on Earth. China's main exports are machinery, including electrical
equipment, apparel, textiles, iron, steel, optical and medical equipment. This is mostly exported to the
U.S., Hong Kong, Japan and South Korea. But Chinese exports travel across the globe. China is also the
second largest importer and so isn't as export-biased as people imagine. China's main imports are
machinery, including electrical, oil, optical and medical equipment, ores, plastics and chemicals. They
import from a mix of countries but especially South Korea, Japan, Taiwan, the United States, Australia
and Germany.
SOUTH KOREA
South Korea is heavily integrated into international trade and finance and is subsequently highly
vulnerable to external influences, especially from China, which is its main trade partner (27% of total
exports in 2021), followed by United States (15%), Vietnam (9.8%), Hong Kong (6.2%) and Japan
(5.1%). Its main suppliers are China (24%), United States (13%), Japan (10%), Germany (4.6%) and
Vietnam with 4.2% (Comtrade, 2021). South Korea has concluded free-trade agreements with many
countries (the last one with five Central American countries) representing more than 70% of the global
economy. The country is still considering joining the Comprehensive and Progressive Agreement for
Trans-Pacific Partnership (CPTPP), which was signed by 11 Asia-Pacific countries in March 2018. On
the 15th of November 2020 South Korea has signed the Regional Comprehensive Economic Partnership
(RCEP) with 14 other Indo-Pacific countries. This free trade agreement is the largest trade deal in history,
covering 30 per cent of the global economy. It includes the Association of Southeast Asian Nations
(ASEAN : Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand,
and Vietnam) and ASEAN’s free trade agreement partners (Australia, China, India, Japan, New Zealand
and Republic of Korea). The RCEP covers goods, services, investment, economic and technical
cooperation. It also creates new rules for electronic commerce, intellectual property, government
procurement, competition, and small and medium sized enterprises.
According to WTO, exports of goods amounted to USD 512.49 billion in 2020, while imports amounted
to USD 467.63 billion. Exports of services amounted to USD 86.14 billion, while imports amounted to
USD 101.58 billion. Since February 2012, the country's trade balance has been in high surplus and is
expected to remain so in the coming years. According to WTO, trade surplus including services
amounted to USD 29.42 billion in 2020.
TAIWAN
With a population of 23.6 million, Taiwan is a thriving democracy with a vibrant market economy. In
2020, Taiwan’s GDP grew by 2.98 percent. The unemployment rate was 3.85 percent and the labor
participation rate was 59.15 percent. As of December 2020, Taiwan was the world’s fifth-largest holder
of foreign exchange reserves and was ranked thirteenth in gold reserves, with holdings of $483 billion and
423.6 metric tons respectively.
U.S.-Taiwan Trade
The United States and Taiwan have a long-standing and vibrant trade relationship. In 2020, the United
States and Taiwan transacted $106.2 billion of trade in goods and services, composed of $39.4 billion in
exports and $66.7 billion in imports, resulting in a goods and services trade deficit with Taiwan of $27.3
billion. The United States is Taiwan’s second largest trading partner, accounting for 13.2 percent of total
trade and 11.5 percent of Taiwan imports. China is Taiwan’s largest trading partner, accounting for 26.3
percent of total trade and 22.2 percent of Taiwan’s imports in 2020. In terms of total trade, other major
Taiwan trading partners include Japan (10.9 percent), the European Union (8.2 percent), and Hong Kong
(7.9 percent).
U.S. Goods Trade
In 2020, Taiwan was the United States’ 10th largest goods trading partner, outranking markets such as the
Netherlands and Italy, with $83.9 billion in two-way goods trade.
Taiwan was the United States’ 9th largest goods export market at $30.4 billion in 2020, an increase of
5.2 percent over 2019, and accounting for 2.1 percent of U.S. goods exports. Top U.S. goods exports
included machinery ($6.1 billion), electrical machinery ($4.9 billion), chemicals ($3.6 billion), mineral
fuels ($3.4 billion), and optical and medical instruments ($2.7 billion).
Taiwan was the United States’ eighth-largest agricultural export market in 2020, with exports totaling
$3.3 billion, a 9 percent decrease over 2019 ($3.62 billion). Top U.S. agricultural exports included
soybeans ($604 million), beef and beef products ($552 million), wheat ($311 million), fresh fruit ($197
million), and corn ($179 million).
Regarding imports, Taiwan was the United States’ 9th largest supplier of goods imports. The island is
not a major supplier of agricultural imports to the United States.
NORTH KOREA
The economy of North Korea is a command economy, or an economy where production, investment,
prices and incomes are all determined by a central government. Another way of wording this is to say that
the economy is centrally planned and doesn't rely on the market to spread money and goods around. With
less support from other communist countries, it has been difficult for North Korea to maintain a
successful economy, and it's therefore one of the poorest countries in the world. Though it's hard to make
estimates because so little information about the economy is known, and the currency of North Korea is
not exchangeable.
By sector, the North Korea economy is far more mixed than most. Based on 2013 estimates, mining and
industry account for 37% of GDP, 34% is services, 22% is agriculture and fishing, and 8% is from
construction. North Korea is not a member of any formal trade organizations.