Hence the ability of ASEAN’s politicians to limit their concessions to the northern industrial giants. They hold the best cards.
However, as every ASEAN economist knows and Australia’s trade-reform example shows, the key to ASEAN’S prosperity includes the very imports ASEAN is reluctant to let in.
Like people, countries increase their incomes by specialising in what they do best. And the only way you can specialise in what you do best is by buying the things you don’t make so efficiently from the people who can.
For all their success as exporters, the three big upper-middle income ASEAN nations – Malaysia, Indonesia and Thailand - have been struggling to complete their climb from middle-income to high-income prosperity.
Even Malaysia, with a per capita income just short of the high-income threshold, has been stuck in the World Bank’s upper-middle category for almost 30 years. That’s twice as long as it took Taiwan and South Korea to climb through the upper-middle income range.
Indonesia is close to the bottom of the range. Thailand is sitting around the middle of the range but is impaired by political divisions. The Philippines and Vietnam are in the low-middle income range.
Avoiding the trap
Economists now talk about the “upper-middle income trap”, pointing to the difficulty of mastering the more sophisticated capitalism needed to make the transition from middle-income to high-income status.
That will come from specialisation, investment in skills, and a competitive culture that devours new ideas from everywhere and breeds its own, indigenous innovation. It is less likely to happen behind tariff walls that reduce the incentive for innovation and impose a hidden tax on exports.
Despite their export-oriented growth strategies, the ASEAN countries have found it difficult to specialise because their economies are similar. Specialisation through trade works best when the trading countries have different specialties.
But now the ASEAN nations are being offered the opportunity to expand their trade with the very different industrial giants in the north desperate to take the fruits of the ASEAN supply- chain and its workers.