Discussion and the readings you have completed, write an extended answer to the following question.
The Asian economies are in a rather curious position given their historical reliance on exports as a driver of economic growth. The Trump tax cuts and a growing economy are expected to increase US consumption, but much of our consumption is of goods made in Asia. Thus, the tax cuts are expected to help the Asian economies grow. At the same time, importing products from Asia increases our trade deficit. President Trump has clearly expressed a desire to shrink the US trade deficit and clearly placed a rather large target on China. China’s importation of inputs and raw materials from its neighbors, however, is a key component of Asian economic growth. Hence, US actions could simultaneous add fuel to Asian economic growth and stifle it.
Having studied a number of economies in the region through their growth story, their experiences during the Asian Financial Crisis, and their post-crisis developments, how do you think the East Asian economies will navigate these contradictory economic influences? Explain.
Does your prognostication for the region change as you move from the short run to the long run? How so? Why? Are there other specific factors to be brought into play? What and why
The Asian Financial Crisis started in 1997 in Thailand after collapsing of the Thai baht. Moreover, currency devaluation has been occurred in other East Asian countries due to bankruptcy in Singapore, Taiwan, South Korea and Japan. Consequently, the global economy expected an economic downturn during this period. The most affected countries are South Korea, Thailand and Indonesia while some other countries like Malaysia, Philippines, Hong Kong and Laos are affected by this economic downturn as well. The Asian development bank and the International Monetary Fund have remained unsuccessful to anticipate this financial crisis. Before 1990, those countries received huge amount of cash flows from private sectors though that flow decreased after 1996 when rapid economic growth of these countries reduced. Moreover, some countries experienced deficits in their current account. Due to large amount investments and comparatively lower amount of savings for long-term, current account deficits have occurred in those Asian countries. As a result, stock market values have decreased. However, openness of economies through export and imports have helped those countries to recover their deficit budget and this further have increased their economic growth like China.
The economic growth rate of Thailand was 9% per year before 1996 while inflation rate was low within 3.4% to 5.7%. However, after 1997, the country lacked the reserve of foreign currency. After 2001, Thailand has recovered its economic condition by increasing tax rate. On the contrary, China’s economy has sustained during this period as the country has not devalue its currency. This is because foreign investors invest their money industrial sector of China rather than its security market.