OREANDA-NEWS. November 17, 2014. Trade has been the lifeblood of Asia’s growth and the key to its prosperity. After a steady rise in the 1990s, exports from the region’s emerging nations took off, quadrupling between 2000 and 2013 to USD5.2 trillion with total trade now second only to the eurozone. In the past decade, emerging Asia’s share of world exports has risen from 20 per cent to 28 per cent.

Today, Asia is the “factory of the world”, responsible for 60 per cent of global electronics exports and roughly 40 per cent of manufacturing exports. Success abroad has improved living standards at home: since 2000, Asia’s GDP has ballooned from USD3.3 trillion to USD15.3 trillion with its share of global output doubling to 20 per cent.

Yet recently, strengthening currencies, rising wages and slowing productivity have fed concerns that Asia’s “miraculous” era of export growth is over. The growth has slowed from an average of 20 per cent in 2004-2007 to 9.6 per cent in 2011-2013.

The decline in emerging Asia’s shipments can be blamed on the steady slide in global export prices and lower volumes caused by falling demand, especially from the eurozone. Although some of these cyclical stresses may be abating as Western economies find firmer ground, demand from developed markets is likely to stay structurally low.

Over the past two decades, Asia’s supply chains have been organised around maximising the benefits from low-cost Chinese labour, but that era is drawing to a close. While China can still draw on surplus rural labour in its inland regions and low-cost producers like Vietnam, Bangladesh and India could potentially fill the gap, Asian manufacturing is gradually exhausting its labour advantage.

These structural challenges mean trade in emerging Asia is unlikely to return to the heady days of double-digit growth, at least in the medium term. However, there are reasons to be optimistic over the long run. Services trade keeps growing faster than goods trade and, as Asia becomes richer, intra-regional and South-South trade linkages will strengthen.

Until now the bulk of Asia’s intra-regional trade has been in primary and intermediate goods. We should in future see greater trade in finished products. Rising incomes will raise demand for capital and consumer goods.

India is poised to take on a bigger role in global supply chains, capitalising on its abundant labour force to become an export power.

But Asia needs a fresh push for liberalisation to ensure its trade continues to flourish. Trade agreements have mostly been bilateral and focused on eliminating tariffs and duties when non-tariff barriers are increasingly becoming an issue.

With global trade talks stalled, mega-regional trade deals are the best way forward, but they are still far from completion. In the interim, Asian policymakers should focus on dismantling internal barriers to trade such as customs red tape and poor infrastructure.