While causing misery and hardship for many, the COVID-19 crisis has been a godsend for futurologists and those bold enough to live by the dictum, “The best way to predict the future is to create it.”
Prognostications abound: Whether it is the promise from politicians to “build back better,” awe-inspiring predictions by engineer-entrepreneurs of this being the start of the real digital-tech-led human revolution or fearful warnings by concerned citizens that COVID-19 may have fundamentally empowered big coercive government at the expense of personal rights and freedom. Much more so than following the Asia currency crisis, global financial crisis or even the Sept. 11 terrorist attacks in 2001, the cacophony of opinions and prescriptions appears to get louder every day, seemingly rising lockstep with the global death toll.
It is easy to lose sight of the one global megatrend that is being turbocharged by COVID-19: the rise of the “Asian century.”
This prediction holds for both economic trends and business opportunities as well as political developments and global rules-setting. The post-COVID-19 world will not just have its economic growth engine in Asia but, from here, all the major new global policy priorities will be dictated by Asia’s growing predominance. That’s why I am bullish on Asia and Japan: As competition for both market share and policy innovations rise, so does human and economic opportunity.
This policy priority shift is happening already. In the world of security policy, both England and Germany earlier this year announced they will be sending naval vessels to Asia — an aircraft carrier from England and a frigate from Germany — to demonstrate how real their commitment and pivot to Asia really is. Both countries are doing so in spite of heavy U.S. pressure to step up their commitments to NATO — namely, the duty to protect their respective homelands and Europe.
It’s not quite “Asia first” for European defense priorities, but both countries count on the region for their own economic future and now want to send a strong signal that there’s more to their respective Asia policy than just pounds and euros.
Meanwhile, for both Japan and the United States, the priority has shifted toward using the extremely strong bilateral relationship as a base to build an all-encompassing alliance with the next two major powers in Asia: Australia and India. It was former Prime Minister Shinzo Abe who proposed the first “Quad” talks between the four nations in early 2007, initially focusing on defense and security although it has since grown into a more comprehensive framework designed to constructively coordinate and credibly counterbalance the rise of China across the Indo-Pacific.
In the world of central banking, the Bank of Japan, the European Central Bank and the U.S. Federal Reserve are now busy playing catch-up to the Chinese central bank’s imminent launch of a cryptocurrency that could very well develop into the anchor cryptocurrency of Asia. Building a new crypto-based central bank infrastructure is infinitely more impactful for a nation than, for example, the U.S. treasury secretary pontificating about Bitcoin or Warren Buffet musing about Elon Musk’s crypto tweets. One is like committing the nation to create a structure that gets you to fly to the moon and back; the other one is more like cheering homemade fireworks at a fraternity party.
In the world of science and innovation policy, the fear of China developing the first working quantum computer — with almost unimaginable implications for global cybersecurity because, essentially, quantum speed computing could theoretically crack any of our existing security code and passwords in mere seconds — has triggered a de facto arms race in Japan, America and Europe not seen since the Cold War.
Unfortunately, these all examples of factors now turbocharging the Asian century have one common element: They all are the West’s mere reaction to the relentless innovation drive and passion for growth at the very heart of Asia — China. At its core, the COVID-19 crisis has highlighted how determined China’s elite is in pursuing its overarching goal of domestic stability, inclusive growth, relentless innovation and global competitiveness.
At the same time, the COVID-19 crisis has highlighted how different and ruthless China’s Communist Party-led approach is compared to the one practiced in democratic countries obsessed with checks and balances. In the post-COVID-19 world, tensions between China envy — the West’s envy for China-style top-down-ordered social control — and democratic pride — the West’s steadfast insistence in the superiority of a rule of law-based democratic system — are poised to rise further.
This is good news because it means global competitive juices and animal spirits will be on the rise as well. Just as the Soviet Union Sputnik success sparked the space race and led to the success of Apollo (and the Teflon pan and the internet), China’s relative success in controlling the economic consequences of the pandemic has become a wake-up call for the rest of the world. If we want to win this race, we must lead by example and show that our democratic and individual-rights-based system can actually out-compete China in its own territory — the Asia-centric world.
The good news is the actual growth opportunities are enormous. To see how powerful the current acceleration in the global economic shift toward Asia is, all you have to do is look at the latest IMF global forecasts. Between now and 2025, three-quarters of every dollar spent worldwide on capital formation — business investment, housing and public infrastructure — will be spent in Asia. At the same time, as much as 92% of the incremental growth in consumer demand could come from one force alone — the rise of the Asian middle class.
So whether you are a capital goods provider, a consumer goods producer or offering a consumer service, there is no question that by far your biggest growth market and opportunity is in Asia. Everywhere else, particularly in Europe and, in aggregate, even in the United States, you are basically playing in a de facto zero-sum game, battling for market share more so than market growth and giving everyone a chance.
A big added bonus for Asia’s economic fortunes in the post-COVID-19 world comes from the trade front. Drowned-out by the pandemic and the U.S. election spectacle, 15 Asian countries, including Japan, China, Australia, South Korea, Indonesia, Vietnam and the Philippines signed the Regional Comprehensive Economic Partnership on Nov. 15.
Although India withdrew at the last minute, RCEP is the single biggest multilateral free trade agreement on earth. It covers about 30% of the world’s population, 2.2 billion people (NAFTA and the EU cover just half a billion each). The pact’s current GDP also represents about 30% of the world’s total, approximately $26 trillion. This is similar to NAFTA’s $24 trillion, but RCEPs growth rate is poised to be at least twice as fast as that of NAFTA.
The real point, however, is not the obvious relative growth opportunity, but the fact that Asia’s policymakers pushed ahead with hammering out a deep and far-reaching free trade and comprehensive economic multilateral agreement among themselves, while America was notably absent.
While American policymakers are struggling to see the benefits of multilateralism, Asia, including China, has actually drawn-up and agreed on the rules of economic engagement and trade for Asia already. To many Asian policymakers the RCEP deal means that America’s consent is no longer necessary to shape the rules of Asia’s economic future. This growing Asian confidence in self-determination is just as important as the much-reported growth in China’s self-esteem.
Here, the growing rivalry between the two undisputed global superpowers — China and the United States — has actually been a principal driving force for a new, more confident Asia. The best example is Japan. If nothing else, the China-U.S. rivalry has forced Japan to become a genuine leader for Asia.
Like all Asian countries, Japan depends for its national security on the United States. China understands and respects this situation for obvious reasons. However, on the economic and business front, Japan (again like all of Asia) depends both on America and China. The priority is to maintain a position of relative neutrality — in the U.S.-China rivalry in general as well as in their economic rivalry in particular, the worst that could happen is to choose sides.
The best way to prevent this is to forge multilateral alliances whenever possible, some including China, others including the United States, so that in the end neither superpower deals just with you alone but with a group of other nations and markets. RCEP, for example, is too big for America to ignore and so is the Quad for China.
Again, the good news is this strategy is working, not just for Japan but more importantly for all of Asia. This year’s and next year’s growth numbers will speak for themselves, with Asia poised to pull away even further from a de facto stagnating Western world. Meanwhile, there is also the hope that the new leadership in the United States does manage to deliver on the long-overdue reinvestment in U.S. infrastructure. If so, it would make me even more bullish on Asia in general and Japan in particular. After all, Japan builds bullet trains, port facilities, air conditioners and all kinds of analog machinery better than anyone else.
So, ignore the noise and focus on Asia for your growth opportunities. If America does genuinely reinvent itself and begins to reinvest in productive capital and infrastructure at home, much of this rebirth will be powered with “Asia inside.” It would be a giant win-win for all — the United States, Asia and the world.
More importantly, it would be the best way for the United States to earn a victory. Post-COVID-19, the world needs more than ever strong proof that the human rights and rule of law-based democratic system is still the best one to pursue because it produces both superior economic performance and greater freedom for its citizens.
Jesper Koll is the senior adviser to Wisdomtree Investments. He publishes blogs at www.wisdomtree.com/blog.
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