Macroscope | Why Asia’s old plan to dodge ‘middle-income trap’ won’t work any more
News Summary
Developing nations are being urged to boost domestic demand and mutual trade to drive growth, though critical factors like population ageing must also be addressed. Some experts fear Asia's decades-long economic miracle may be giving way to a “doom loop” of ageing populations, fiscal strains, falling output, declining consumption, and sagging economic growth. Bambang Brodjonegoro, the recently appointed dean of the Asian Development Bank Institute and former finance minister of Indonesia, mentioned that findings from a new flagship study on why Asia's economic miracle appears to have gone bust and how it might be renewed will be published in 2027. The article highlights that Asia's original miracle was built on spectacular export growth to the United States. However, since US President Donald Trump began his second term, tariffs and other sanctions have rendered export-led growth no longer a primary engine. The Trump administration insists many Asian countries have enjoyed “unfair” trade advantages and export surpluses, advocating for a shift towards domestic demand and mutual trade.
Background
Asian economies experienced decades of rapid growth from the 1950s onwards, commonly referred to as the “Asian economic miracle.” This growth model was primarily export-driven, pioneered by Japan, followed by South Korea, and later the “Asian Tigers” (Taiwan, Hong Kong, Singapore). These economies industrialized and accumulated wealth by exporting goods to the United States, making export-led growth central to their development model. The “middle-income trap” describes a scenario where developing countries, after reaching middle-income status, stagnate due to rising wages eroding competitiveness without successfully transitioning to high-value-added economies. Currently, shifts in global trade policy, particularly tariffs and trade sanctions implemented by the US President Donald Trump administration during his second term, are compelling Asian and other developing nations to re-evaluate their growth strategies, moving away from over-reliance on exports towards domestic consumption and intra-regional trade.
In-Depth AI Insights
What are the deeper implications of the Trump administration's trade policies for Asian economies, beyond just a superficial decline in exports? This signifies an accelerated process of "de-globalization" and "de-dollarization" for Asian economies, pushing them away from a US-centric global supply chain towards more regionalized, self-sufficient economic models. This is not merely about avoiding tariffs but a strategic response to the fragmentation of the global trade system, potentially leading to the rise of new regional trade blocs and digital currency settlement systems. In the long term, this pressure will compel Asian nations to increase domestic investment in critical technologies and industrial chains to enhance economic resilience and strategic autonomy. Given population ageing and the rise of AI, what are the profound challenges and potential opportunities as Asian economies shift towards domestic demand-driven growth? Challenges for an Asia shifting to domestic demand include the fact that ageing societies typically imply slower aggregate consumption growth and increased social security burdens, potentially dampening long-term domestic demand potential. The widespread adoption of AI, while boosting productivity, could also lead to job displacement for some workers, exacerbating income inequality and further suppressing consumption. However, this also presents opportunities: - Ageing populations create a huge 'silver economy' market, including healthcare, elder care services, smart home technology, and age-friendly products. - AI can optimize production efficiency, meeting diverse domestic demands through smart manufacturing and personalized services. - Governments may implement more proactive fiscal policies, such as expanded social welfare and redistribution, to stimulate and sustain domestic demand. What deep investment clues, potentially overlooked by the market, might the Asian Development Bank Institute (ADBI) study, due in 2027, reveal? The ADBI study may go beyond mere macroeconomic analysis to delve into the specific successes and bottlenecks of structural reforms in various Asian countries. Overlooked clues by the market could include: - Winners and losers in supply chain reconfiguration: Which Asian nations successfully attract or cultivate alternative industrial chains, becoming new regional supply chain hubs. - Policy drivers for digital and green economies: Which policy frameworks effectively promote digital infrastructure development and green energy transition, thereby creating new growth points. - Progress in regional financial integration: Deepening intra-Asian capital market connectivity and the potential for regional currency cooperation could bring new conveniences and opportunities for cross-border investment. The release of this study could be a critical milestone for evaluating Asia's future growth trajectory and investment opportunities.