Europe and US Busy Integrating While Asia Is Still Consuming Itself

The negotiation of the Trans-Atlantic Trade and Investment Partnership (TTIP) treaty has ended recently in Washington. Both parties have reached basic goals and have had some substantial discussion on all the fields the treaty covers. This paves the way for the second round of talks to be held in Brussels this October. Once the TTIP agreement is reached, it will be the largest free-trade agreement in history. The tariff between the U.S. and Europe will be lowered to zero, and the agreement will cover one-third of the world's trade and half of the world's gross domestic product. It is said that this agreement will bring Europe and the U.S. hundreds of billions of euros worth of benefits.

After the financial crisis, free-trade talks on a regional scale have been springing up. The Europeans and Americans have busied themselves integrating economies. What about Asia?

On July 15, Japanese Prime Minister Shinzo Abe appeared on TV saying that Japan is going to amend Article 9 of its constitution, and that it is right for Japan to always remember and recognize the existence and role of the self-defense forces. In addition, he also stressed the necessity of properly upgrading the self-defense army. What is more, according to the report by the Kyodo News service, Abe is also thinking about paying an inspection visit on July 17 to the Miyako and Ishigaki Islands, which are only about 160 kilometers away from the Diaoyu Islands. All of this indicates the ongoing deterioration toward military confrontation in northeast Asia, which will affect regional economic activities and the free-trade talks.

In recent years, trade between China and Japan has been rising. Scholars even think that the free-trade zone between China, Japan and Korea will become the engine of the future world economy. However, the talks that should be launched this year are postponed because of frictions arising from the Diaoyu Islands. As trade between China and Japan is negatively affected, the amount of cross-border trade of the Chinese renminbi has also decreased. At the same time, news reveals that China is selling Japanese government bonds in large quantities and holding a record high amount of the U.S. counterpart.

The free trade zone between China, Japan and Korea has 1.52 billion consumers, owning 20 percent of the world's GDP and accounting for 17 percent of world's combined exports and imports. What is lacking is an institutional framework. So far the amount of trade between these three countries only accounts for around 11 percent of their external trade in total, leaving a lot of room for improvement. With the cancellation of the tariff within the free trade zone and removal of other restrictions in terms of trade, the flow of commodities and funds will go more smoothly, and the overall economic welfare of all three countries will improve. China, Japan and Korea have a functional division of labor in terms of their individual economic system, and thus have complementary values for each other. The integration of regional trade and investment will further promote the integration of a regional monetary system and accelerate the process of the regionalization of the Chinese renminbi.

Why can we not make this good thing happen? Why do we still have military confrontations instead of peaceful cooperation, when the Asian integration is far behind that of Europe and America? Why can those Japanese prime ministers who are in favor of regional prosperity and cooperation never remain in power for long? Why do we have to let external forces control the Western Pacific with no constraints? Who is benefiting and who is getting hurt from the slowdown of the Asian integration and the increase of suspicions? Who laid the groundwork for all this? The logic behind it is thought-provoking.