The Crisis in the U.S. and the Future of East Asian Production Sharing

Abstract

The East Asian economic zone is well known for its highly integrated manufacturing system that was initialized and is driven by the market mechanism. As participants in a common production sharing network, East Asian economies are highly interdependent. Externally, advanced economies in the West make up the main target markets for exports from East Asia. Moreover, they provide capital to feed the investments required by regional growth. This paper investigates the potential effects of the recent economic crisis on East Asian production sharing. It suggests that the high interdependency of the global economy has made it unlikely for East Asia to remain immune to the crisis. Indeed, the impacts of the crisis on the regional economy in the long run are likely to be more serious than those in the short term. The crisis could be a factor in accelerating the process of East Asian regional integration, especially in terms of financial integration. Fundamentally, the weakness of the East Asian economy comes from its rather passive position in the global industry value chains. In order to improve its core competitiveness in the global market, East Asia needs to increase the technical and knowledge based contents of production sharing. Meanwhile, East Asian countries need to develop a mature social security system to buffer temporary unemployment. By boosting the intra-regional market and strengthening inter-regional cooperation with other emerging economies, East Asia could gradually turn the current production sharing network into a multi-oriented one, allowing the regional economy to be relatively less dependent on the West, and therefore less vulnerable to a crisis originating in the West. Last but not least, it is in the region’s best interests to support the multilateral trade negotiation system in order to secure free trade and capital movement globally.