Asia's Challenge to the Global Economy

Asia is one of the world’s most economically dynamic regions. But growing economic and financial inter-linkages between Asia and the world also have created significant tensions—with President Trump notably complaining that trade with China is a “bad deal” for the United States. and calling for significant changes to the underlying economic and financial relationship. Understanding the sources of this tension consequently is a critical challenge. One neglected reason for Asia’s large global trade surplus—and the associated bilateral surpluses with the United States is the high underlying level of savings of many East Asian economies. That excess savings corresponds to a low level of consumption—and a tendency to rely either on credit or exports to shore up growth. Asia’s large savings surplus—the savings surplus is economically equal to the current account surplus—fell after the global crisis, but it subsequently has risen and is now approaching its pre-crisis high as a share of world GDP. My recent discussion paper, “The Return of the East Asian Savings Glut,” reviews the sources of Asia’s savings glut and proposes a range of policies for bringing these countries’ uniquely high savings rates down. Ongoing work looks both forward and backward, seeking both to provide a better assessment of the impact of China’s World Trade Organization (WTO) accession fifteen years ago and to evaluate how U.S. foreign economic policy toward major Asian economies could evolve in the next several years. Careful tracking of the foreign exchange intervention of China and other Asian economies provides the foundation for much of this analysis, as well as a resource for journalists, academics, and policymakers.