Question

The Asian economies are in a rather curious position given their historical reliance on exports. The Trump tax cuts are expected to increase US consumption, but much of our consumption is of goods made in Asia. Thus, the tax cuts are expected to help the Asian economies grow. At the same time, importing products from Asia increases our trade deficit. President Trump has clearly expressed a desire to shrink the US trade deficit and clearly placed a rather large target on China. China’s importation of inputs and raw materials from its neighbors, however, is a key component of Asian economic growth.

Hence, US actions could simultaneous add fuel to Asian economic growth and stifle it.

Having studied a number of economies in the region through their growth story, their experiences during the Asian Financial Crisis, and their post-crisis developments, how do you think the East Asian economies will navigate these contradictory economic influences? Explain. Does your prognostication for the region change as you move from the short run to the long run? How so? Why? Are there other specific factors to be brought into play? What and why.

Answer 1

The East Asian economies will grow faster than expected in the future years even after the tax cuts. There are fears of rising inequality and financial markets overheating, but still there will be economical growth. For the short term it will have good results and the economy will grow. But in the long term the economy will face difficulties. Even though the tax cut is providing jobs and increasing growth in the short term. Still there will be impacts on the individual incomes and also corporations in the future. But currently they get good profitability.
The profits they will be used for mergers and for acquisition of debt reduction and stock buybacks.