Eye on Asia | The world must face our shared existential threats together for the common, and not let rivalries separate us
- Emerging economies of the world must find a common voice
- The world spoke with a single voice as recently as in 2015, with the conclusion of the Paris climate accord and the Sustainable Development Goals for 2030
Managing an economy is not for the faint of heart. Policymakers must constantly monitor the ever-evolving global economic landscape, and anticipate lightning-fast changes that can breed volatility and uncertainty.
As today’s political and economic turbulence attests, the impact of events in one place can be felt far and wide, but particularly in emerging economies.
To stay ahead of the curve, policymakers must put international cooperation above short-term national interest. And yet, in the last two years, protectionism, policy divergence, and a lack of coordination have begun to pose serious downside risks to the global economy. A confluence of factors is creating a perfect economic storm.
For starters, the US Federal Reserve has tightened liquidity through its interest-rate hikes, while the US Treasury’s pro-cyclical expansionary policy (tax cuts and increased spending) has bolstered aggregate demand and pushed up the yield on 10-year Treasury bonds.
Moreover, US trade policy vis-à-vis China and Europe has dampened global trade. As a result of this policy mix, the US dollar is appreciating, and capital flows into emerging economies are declining.
For countries like Indonesia, the danger now is that a full-blown US-China trade war could derail much of the socioeconomic progress that has been made in recent years.
