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Good News: Free Trade Isn’t Dead

We saw an article yesterday that gives us hope for the future as we reach these last few days of 2009.   The New York Times wrote,

When the clock strikes midnight on New Year’s Eve, China and 10 Southeast Asian nations will usher in the world’s third-largest free trade area….  Trade between China and the 10 states that make up the Association of Southeast Asian Nations has soared in recent years, to $192.5 billion in 2008, from $59.6 billion in 2003. The new free trade zone, which will remove tariffs on 90 percent of traded goods, is expected to increase that commerce still more.

The zone will rank behind only the European Economic Area and the North American Free Trade Area in trade volume. It will encompass 1.9 billion people. The free trade area is expected to help Asean countries increase exports, particularly those with commodities that resource-hungry China desperately wants.

Being the hand-wringing, left-leaning New York Times, they of course titled the article “In Southeast Asia, Unease Over Free Trade Zone.”  Leave it to the NYT to fixate on the anti-trade grumbling of a small number of people and completely miss the larger story:  that after the biggest financial crisis since the Great Depression, free trade isn’t dead!

We’ve seen a surge of anti-free-trade sentiment pop up in the U.S.and Europe (remember the shameless “Buy American” provisions?), but luckily the actual damage has been fairly small.  Still, while we free traders in the West are fighting a rear guard action to simply hold on to what we have, in Asia they are boldly moving forward.  Good for them.

Increased intra-Asian trade should help to gradually wean the region off of its reliance on exports to the West.  It should help to facilitate the continued rise of the middle-class Asian consumer.  This is good for Asia and good for the world.

We are not “sinophiles” here at HS Dent.  Unlike some other commentators, most notably Jim Rogers, we do not believe that the coming decades will see China emerge as the new world economic leader.  The country simply has too many serious demographic issues with which to contend.   But, we do believe that a healthy China and a healthy ASEAN is beneficial to ourselves and to the world economy more broadly.  So, here’s to the success of the Asian free-trade zone in 2010 and beyond.  Cheers!

Charles Sizemore, CFA

Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy