Since the Trump administration took office, the future of the transatlantic axis has been uncertain. The EU’s external economic policy, therefore, needs reorientation. Asia, the world’s most dynamic growth region, should play a central role in this regard, writes Cora Francisca Jungbluth.
Cora Francisca Jungbluth is project manager at the Bertelsmann Stiftung.
Today, the four largest Asian economies—China, Japan, India, and South Korea—already account for approximately one-fourth of global GDP. So does the United States, currently the dominant global economic power.
However, the Asia-Pacific region is expected to have high economic growth in the future, while the growth rates in industrial countries are forecast to stagnate or decline. For this reason, the EU’s Trade and Investment Strategy published in 2015 already called for the strengthening of the EU’s “presence in the Asia-Pacific region”.
The rising protectionism worldwide and, more specifically, the political antics of U.S. President Donald Trump, have given strong momentum to what some observers have already called “Europe’s Asia Pivot”. Furthermore, Brexit means that the European Union is facing an at least partial economic disintegration.
Against this backdrop, it is all the more important to find new partners and to strengthen or reorient relations with old partners, Asia being one of them. The Asia-Europe Meeting (ASEM) with currently 51 member states already gives European-Asian relations an institution that would lend itself to this purpose, since the promotion of economic cooperation is an important pillar in the ASEM process.
China as Main Driver: European-Asian Trade Relations
The 18 Asian members of the ASEM already take on major importance in so-called extra-EU trade, that is, exchange of goods between the EU and the rest of the world: In 2016, they stood for approximately 31 percent of extra-EU trade.
China as the region’s economic heavyweight accounts for half of this (14.7 percent). Nevertheless, the United States continues to be the EU’s most important extra-EU trading partner. In extra-EU imports, however, China takes first place over the United States.
Among the top 10 extra-EU trading partners in 2016, there were three other ASEM members: Japan, South Korea, and India. It was only trade with China, however, that grew at a truly dynamic rate. Japan’s share has fallen by almost half since 2002.
South Korea’s and India’s shares have stagnated at around 2.5 and percent, respectively. In contrast, Malaysia, Indonesia, and Vietnam, which are regularly cited as future economic centres in the region, have barely exceeded one percent in the past 15 years.
Free trade agreements (FTAs) are one key to releasing the potential that the trade relations between the EU and its most significant ASEM trading partners could offer.
At the present time, the EU is negotiating bilateral FTAs with a number of Asian countries. Negotiations on bilateral FTAs have already been concluded with Singapore and Vietnam, although the agreements have not yet entered into force.
Other negotiations, such as with Japan, have gained new momentum with U.S. President Donald Trump’s accession to office. As of to date, however, South Korea is the only Asian member of the ASEM that has an FTA with the EU that has entered into force.
Room for Growth: European-Asian Investment Relations
The transatlantic relations are dominant in foreign direct investment (FDI) between the EU and non-EU member states (extra-EU FDI), too: the United States accounts for 37.1 percent of the EU’s outward FDI stock and even 41.4 percent of the EU’s inward FDI stock.
In contrast to extra-EU trade, the Asian members of the ASEM play a rather subordinate role here: their share accounts for 9.5 percent and 5.3 percent, respectively. This shows that the EU has invested significantly more in these countries than vice versa.
At least part of the EU’s trade deficit with the Asian members of the ASEM is attributable to this: European companies have set up subsidiaries in Asian countries through which they import cost-efficient intermediate and final goods into the EU and from there—possibly processed further—export to other regions of the world.
It is therefore not surprising that China, as the “factory of the world,” currently is the EU’s most important FDI location in Asia.
As for the FDI stock the Asian ASEM members hold in the EU, Japan is the only country whose share in the EU’s inward FDI stock is significantly above one percent. The other countries are in some cases far below that—even though most of them have greatly expanded their shares in the last 15 years.
China’s FDI stock in the EU has experienced particularly dynamic growth, increasing by a factor of nearly 60, from 605 million euros (0.05 percent of the EU’s inward FDI stock) in 2001 to approximately 35 billion euros in 2015.
In general, there is still much room for growth in investment relations between the EU and the Asian members of the ASEM. While the significance of this region is already reflected in bilateral trade, this is not yet the case with regard to reciprocal FDI to date.
The Asia-Europe Meeting could serve as Pillar for Deeper Economic Integration
The uncertain future of the transatlantic bloc means that the EU should reorient its external economic policy. The Asia-Pacific region with its dynamic growth prospects should be a major focus in this regard. One key element in this process will be the establishment of a solid foundation for European-Asian economic relations in the long run.
When the Economic Ministers of the 51 ASEM countries met in Seoul from September 21 to 22, 2017, they put strong emphasis on “ASEM-wide trade and investment facilitation” and agreed to further push already existing plans to promote trade and investment between the two regions.
It was their first meeting since 2005, adding to the new momentum ASEM has gained due to the changes in the international economic and policy conditions. By holding on to this historical opportunity, Asia and Europe should make even greater use of the ASEM as a pillar to enhance the economic integration between the two regions in the future.