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The Health of California’s Economy Is Tied To Asia

October 8, 2008

Notable signs of hesitation among Asian investors were evident in Monday’s turbulent downturn in Japan, South Korea, Singapore and elsewhere. The run on the Bank of East Asia in Hong Kong in late September was the result of nervous depositors reacting to the crisis on Wall Street. The full effect on global investors of last week’s bailout package remains to be seen. Because the U.S. credit crunch impacts the global markets, Americans should keep their eyes on Asian markets as the health of our economy is tied to Asia in critical ways. And California is a prime example.

As the nation’s leading producer of agricultural, electronic, aerospace, and entertainment service products, California serves as a gateway for trade between the dynamic Asia-Pacific region and the United States.  Asian markets have and continue to represent significant commercial opportunities and growth for California exports.  According to the U.S. Department of Commerce, in 2007 California exported over $55 billion in goods to the Asia-Pacific region, accounting for 41 percent of all California exports and nearly 20 percent of all U.S. exports to Asia.  Of California’s top five international trading partners, three are in Asia ” Japan, China, and South Korea.  Not surprisingly, California’s trade with these nations is superseded only by Mexico and Canada.  Computer and electronic products account for 28 percent of total exports to Japan.  Exports to China have grown by more than 30 percent over the past four years, particularly in the areas of transportation equipment and metal manufacturing.  Valued at almost $2 billion, almonds is the state’s top agricultural export to India as well as second largest to Japan and China.

Last month in San Francisco, I listened to three of Asia’s most distinguished diplomats urge the next U.S. president to make Asia a priority. Their comments were made to a group of Bay Area CEOs and financial advisers, and reflected the recommendations put forth by 20 distinguished Asian and American diplomats and scholars in a report released earlier this month called “America’s Role in Asia: Asian and American Views.”  Together, they stated that the “health of the U.S. economy is now tied to Asia in fundamental ways that, if not grasped quickly by the incoming administration, could have unintended, adverse consequences.” An economic meltdown is in no one’s best interests. The United States and the countries of East and Southeast Asia represent 56 percent of global gross domestic product, 48 percent of global trade, and 40 percent of the world’s population.  When you include India as one of the world’s top emerging markets and investment area, California’s economic stake in Asia becomes even higher.

As our global markets become more strongly linked and intertwined, California voters have a vested interest in seeing that the next U.S. administration put trade with Asia at the top of the agenda.  Congress should give the 44th president fast-track trade negotiating authority, successfully conclude the Doha Development Round under the World Trade Organization, and pursue other trade initiatives through the Asia-Pacific Economic Cooperation (APEC) forum. Liberalizing goods and services under the WTO and APEC would enable California to better penetrate Asian markets, as exports can help the state create jobs at a time when California is experiencing growing unemployment and economic difficulty.

It is also in California’s interest to see Congress ratify a free trade agreement (FTA) with the state’s 5th largest trading partner, South Korea.   The U.S. Congress has never failed to ratify a bilateral trade pact, but, given the U.S.’s economic uncertainty, it remains unclear if the U.S.-Korea FTA will be ratified.  According to the report, “failure to implement the U.S. ” Korea FTA would send a terrible blow to U.S. ” Korean relations, U.S. standing in Asia, and the U.S. role in global trade policy.”  It is estimated that the signing of a U.S. ” Korea FTA will provide an additional $12 billion in U.S. exports to that country.  During challenging economic times, U.S. exports to the world are what is keeping the U.S. economy going ” and California is the fulcrum of that effort.

Asia wants to see the next U.S. president uphold America”s commitment to globalization, free trade, and international rules.  Though there are sections of the American public that are opposed to and feel threatened by globalization, an American drift toward protectionism will only serve to stunt economic growth in the Asia-Pacific, hence negatively impacting California.  It is in California’s best interest for U.S. policy to emphasize trade liberalization and promotion.

John Brandon is The Asia Foundation’s Director for International Relations Programs. He can be reached at

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