Paris, Saturday, February 27, 1999
For the Sake of Free Trade, Asia and Europe
Need to Be Strong
By Gerald Segal International Herald
LAUSANNE, Switzerland - As some Asian
economies begin the long climb out of recession,
the crisis that began in July 1997 becomes as
notable for what did not happen as for the
devastation it caused.
For the senior officials and specialists
concerned with Asia-Europe relations and the
global economy who met recently under the
auspices of the Evian Group in Lausanne, the most
striking nonevent has been the absence of major
trade protectionism in the developed world. But
to the embarrassment of many Europeans, the
credit for maintaining the vitality of the global
economy is almost entirely American.
As Asians try to export their way out of
recession, the annual U.S. trade deficit has
risen to $280 billion, from $146 billion in 1996.
The 11 euro zone countries continue to run a
steady trade surplus of about $100 billion a
year. Europeans may sneer at the low U.S. savings
rate, but Asians have gone quiet on the subject.
They know it is the openness of the U.S. economy
that keeps the global economy growing.
The second nonresult of the Asian crisis is
the absence of a global recession. There has
clearly been a contagion effect in emerging
markets around the world, but the North Atlantic
economies that account for two-thirds of global
gross domestic product are still growing. The
precrisis hype about Pacific Asia as the engine
of future global expansion raised concerns that
an Asian crisis would lead to crashes in the
United States and the European Union. This has
Instead, we see the United States sustaining
its longest peacetime era of economic expansion.
European growth is patchier, but as Germany's
deceleration shows, problems have far more to do
with the failure to engage in domestic structural
reforms than any Asian effect. As France, Spain
and the Netherlands demonstrate, many other
European countries are doing very well.
Yet there is a worrying non-event for both
Europeans and Asians: the absence of their
much-touted ability either to replace American
leadership with their own, or to create a
stronger Asia-Europe axis.
Europe's euphoria about the euro changing the
global balance of power has been tempered by
depressing realities since the launching of the
single currency in January. European growth is
hindered by structural rigidities and the
independence of the European Central Bank, which
gives little opportunity for fiscal or monetary
stimulus. The absence of a genuinely common
foreign and security policy means that Europe
still lacks a leader.
Asia also lacks leadership. So long as Japan,
which accounts for two-thirds of GDP in Pacific
Asia, remains in recession, it is in no position
to lead a meaningful Asian recovery. China, whose
growth rate continues to contract, is even less
well placed to lead.
The Association of South East Asian Nations
has long been the intellectual shaper of debates
about Asian cohesion and identity. But because of
financial turmoil and the economic slowdown in
the region, it has lost confidence in its ability
to articulate a vision of the future. Under such
circumstances, it is not surprising that those
who are concerned about keeping the global
economy open are worried by the weakness of
Europe and Asia.
A strong Europe and Asia committed to openness
are vital to keeping the United States committed
to open multilateralism. Yet as U.S. trade
deficits balloon and European and Asian rhetoric
about American ''hegemonism'' gets louder,
Washington will be increasingly attracted to
unilateralism. As a result, U.S. legislation
aimed at punishing errant trading partners, and
belligerent U.S. postures in World Trade
Organization negotiations will become more
The current flirtation of Europe and Asia with
restricting trade in the booming business of
genetically modified food is an especially
worrying example of how delicate the balances of
forces in favor of free trade are. The United
States, along with Australia, Canada and
Argentina, account for more than 90 percent of
trade in genetically modified food. Europeans and
Asians, who find it hard to compete, are
exaggerating scientific worries to hobble their
The fact that U.S. economic success seems to
be increasingly built on strengths in the
information and innovation economy of the future
makes more disputes of this kind likely - just as
negotiations are to begin this year at the World
Trade Organization on a new Millennium Round of
cuts in a wide range of barriers to global trade.
Unless Europe and Asia are able to keep the
United States committed to open multilateralism,
the Asian crisis may yet produce nasty results.
The writer is director of studies at the
International Institute for Strategic Studies in
London and Director of Britain's Pacific Asia
Program. He contributed this comment to the
International Herald Tribune.