Resolving New Global and Regional Imbalances in an Era of Asian Integration

Economic integration in East Asia is in part stimulated by new intra-industry vertical specialization as seen typically, for example, in the electronics industry. The rise of China is pushing further this vertical specialization. China has been rapidly developing its processed exports by importing sophisticated technology-intensive intermediate goods from Japan and the NIEs such as Korea and Taiwan, processing them with its cheap labor and exporting the processed products, particularly, to the U.S. and the EU. This has created a triangular trade pattern on a global scale which, combined with the rapid increase in the U.S. current account deficit, has generated a new pattern of global current account imbalances. In 2003, China posted a trade surplus of more than 100 billion dollars in its bilateral trade with the U.S. However, China's trade surplus with the whole world remained at 20 billion dollars. This implies that China has huge trade-deficits vis-a-vis countries other than the U.S., one of the main causes being its imports of sophisticated intermediate goods from Japan and the NIEs.

This new global pattern of current account imbalances, comprising the already-large U.S. current account deficit and current account surpluses of the East Asian region including Japan, is a reflection of the global triangular trade pattern on the one hand, while it has also created a global monetary situation where the rapidly increasing foreign reserves in the Asian region is influencing the U.S. interest rates, on the other.

At this symposium, the nature of the new global imbalances and their sustainability will be analyzed, and a possible scenario of the adjustment processes of these imbalances will be discussed. More concretely, the symposium will address what impact the adjustment processes, i.e. foreign exchange adjustments, monetary-cum-fiscal, and structural reforms, will exert on the process of East Asian economic integration, and specify appropriate economic policies that will overcome the global imbalances, and provide for sustainable growth and facilitate further economic integration in East Asia.