[SCMP Column] Trump's Tariffs Shake the Myth of Asia's Export-Led Growth

Limits of the Export-Led Growth Model Revealed
India's Import Substitution Strategy Brings Relative Stability
Less Vulnerable to External Shocks
Time to Revisit the Idea of an "Asian IMF"

Anthony Rowley, Asia regional economy and finance specialist reporter.

Imagine you are steadily, though slowly, driving along the path of domestically driven economic development, when suddenly your navigator advises you to take a faster route through export-led growth. You willingly change course according to this instruction, but a massive tariff barrier suddenly appears ahead, blocking your way.

The navigator then suggests you reverse out of this dead end and find another route. However, this process is difficult, time-consuming, and costly. What would you do? Would you tear your hair out in frustration, or would you abandon the navigation system and forge your own new path?

This is a metaphorical description of the situation currently faced by several Asian countries. The tariff policies of the Donald Trump administration have exposed the harsh realities of global trade, and Asia's export-driven growth model has reached a dead end filled with obstacles.

After World War II, Asia's "Four Tigers"?Japan, South Korea, Taiwan, Hong Kong, and Singapore?adopted open economies and export-led growth strategies for decades, following the advice of Western economists. In contrast, India chose an import substitution policy, imposing high tariffs on foreign goods and encouraging domestic manufacturing. Every industry, from motorcycles to machine tools, was affected by this system.

However, as a result of excessive dependence on exports, several Asian countries now face a reality where demand no longer exists, due to the United States' protectionist trade policies, China's push for self-sufficiency, and Europe's moves to protect domestic industries. Growth through global supply chains is no longer an easy option.

All of these problems cannot be blamed solely on President Trump's tariff policies. The system that relied on excessive consumption and imports by the United States and Western countries, and the resulting trade imbalances, was neither politically nor economically sustainable. President Trump's policies have put a sudden brake on this situation.

"Asia's export-led growth model has brought unprecedented prosperity. But the world has changed." The International Monetary Fund (IMF) recently made this declaration. The IMF also warned that the global economic system is being reshaped as the United States imposes high tariffs targeting Asia, which once accounted for about 60% of global economic growth. The IMF added that "the region's successful growth model, based on trade liberalization and value chain integration, is facing increasing challenges."

Was this growth model really as successful as the IMF claims? In the past, Western colonial powers suppressed industrialization in developing countries by using them as suppliers of raw materials. However, World War II effectively bankrupted the United Kingdom and European countries, while the United States, unscathed by the war, was able to expand its influence. There was a significant strategic objective to contain Russia (the former Soviet Union), particularly through Japan.

Subsequently, industrialization and economic development spread from Japan throughout East Asia, and economists called this the "flying geese model," praising it as the "Asian economic miracle." However, from today's perspective, this strategy may have been closer to an "illusion" than a miracle.

Export-led development is premised on sufficient demand from importing countries. However, the United States has now turned to protectionism, China is trying to meet domestic demand with domestic production, and Japan and Europe are concerned about China's oversupply. This means the export-led model is no longer viable.

The IMF has also acknowledged that "the outlook for the Asia-Pacific region has darkened," and for the first time since the COVID-19 pandemic, has made its largest downward revision of the region's economic growth forecast. The IMF now projects this year's growth rate for the region at 3.9%, down 0.5 percentage points from last year's 4.6%. The IMF explained that this reflects "slowing global demand, declining trade, tighter financial conditions, and increased uncertainty."

In contrast, India, which maintains a relatively closed economic structure, is expected to post a growth rate of 6.2% this year and 6.3% next year, remaining relatively robust. This suggests that a protectionist policy structure, less exposed to external shocks, may actually provide greater stability.

This is not the only price Asian countries have paid for too readily accepting the advice (or pressure) of Western multilateral institutions such as the IMF. The capital market is another clear example.

Just before the 1997 Asian financial crisis, the Asian region?including Southeast Asia?opened its doors to massive inflows of foreign capital (something Latin American countries had done in the 1980s, which led to the Latin American crisis). As a result, Asia suffered a capital account crisis, with several countries taking a heavy hit. This led to calls for an "Asian IMF," and a demand for independent solutions and support, rather than advice and funds originating from the United States. Meanwhile, China, which had maintained careful capital controls, was able to avoid such a crisis.

External intervention may be well-intentioned, but accepting it uncritically is risky. Each country must carefully consider its own circumstances and the international situation. Now may be the time for the Asian region to resume discussions about an "Asian IMF" as it seeks a way forward. Each country should focus on a cautious approach at its own pace, and avoid the "shortcut" that ultimately turns into a dead end.

Anthony Rowley, Asia regional economy and finance specialist reporter

This article is a translation by Asia Economy of the South China Morning Post (SCMP) column, "Trump's tariffs are waking Asia up from the dream of export-led growth."