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The Big Thing in the New Year? It's in Asia

Posted: 01/03/10 03:03 PM ET

The new year is barely upon us, and we already know it will be momentous. Americans have several reasons to pay close attention to events in 2010: it's an election year, the Iranian nuclear crisis may crescendo, and the fate of the President's health insurance reform will be decided.

But I'm an editor at the Malaysia-watching website Malaysia Matters, and I want to tell you about something huge happening in 2010 in that corner of the world that will affect America and its future. It's been mostly ignored by the media, and is mostly unknown to the public. It's the inauguration of the Free-Trade Area (FTA) between China and the ASEAN nations. If you don't think this matters to Americans, think again.

The Association of Southeast Asian Nations, or ASEAN, is an economic powerhouse in its own right. Since 1992, it's been a free-trade area stretching from the banks of the Irrawaddy to the forests of New Guinea. ASEAN embraces ten countries with over half a billion people, and a collective economic output of over $1.5 trillion dollars. Set against the United States, that's nearly twice the population with about one-tenth the economy. But ASEAN has two advantages.

First, the ASEAN bloc is growing at a fast clip: whereas U.S. GDP struggled to break 3% growth in 2007 and 2008, ASEAN chalked up GDP growth at a rate of 16% for each of those same years. By the end of 2008, ASEAN nations nearly doubled their collective GDP in just four years. That's a remarkable accomplishment for a period when the annual GDP growth for the entire planet hovered around 5%.

Second, it will soon have China. And China will have ASEAN.

The China-ASEAN FTA comes into effect in two stages: six ASEAN nations and China eliminate tariff barriers in this new year, and the other four (Burma, Cambodia, Laos, and Vietnam) plus China eliminate tariffs in 2015. By the middle of the new decade, then, the ASEAN bloc will add to itself a Chinese economy with its own impressive accomplishments. At approximately 1.3 billion persons, China is the world's most populous state, and at a GDP of nearly $8 trillion, its economy is just over half the size of America's. Like ASEAN, China's GDP growth exceeded the world average, and that of the United States, in 2007 and 2008, with 11.4% and 9.6% growth respectively.

What does the combined China-ASEAN Free Trade Area look like together? In a word, huge. The unified trade area is just a few years away from two billion people and a $10 trillion GDP. And it will keep growing. Trade between China and the ASEAN nations more than tripled in the five years ending in 2008, when it stood at just under $200 billion. With free trade, expect that number to skyrocket. The China-ASEAN FTA will be smaller than the NAFTA and the European Union, but it's not unreasonable to assume it will surpass the EU within the decade if present growth rates continue.

So, the China-ASEAN FTA is upon us, and it's a big deal. What does it mean for us in America? As it happens, quite a lot -- though its importance is more long-term than immediate.

The motivations for the China-ASEAN FTA are not simply material, though that is almost certainly the central attraction for the ASEAN nations. For China, the FTA is something more than a market mechanism. It's a strategic investment in a region of historical Chinese influence -- and even somewhat beyond. As the FTA strengthens the links within this region, expect Chinese diplomatic influence to grow accordingly. Expect, too, that there will be a military dimension to this influence: China is already investing in littoral facilities in places like Gwadar, Pakistan, and it only stands to reason that there will eventually be a string of ports-of-call for Chinese merchant marine and navy along the supply route the brings Middle Eastern oil to the burgeoning economies of east Asia.

That's the key to the deeper significance of the China-ASEAN FTA. It doesn't just link China to the nations that are adjacent to it anyway. It also further solidifies the deepening link between China and the Islamic world. Malaysia is surely at the center of this link, not simply geographically, but also as an east-Asian state at the center of the emerging Islamic-finance sector. Expect its own diplomatic stature to dramatically increase as an intermediary in the Chinese-Islamic connection.

What was in centuries past expressed by the Silk Road is now reemerging as a mostly maritime trade-and-energy link with a worrying overtone of historical resentments and vague anti-Western antagonism. It's not an inevitably bad development for America, nor even for Europe -- but it directly involves neither, and it's perhaps the biggest geo-strategic development of our young century. If the central strategic fact of the 19th and 20th centuries was the centrality of the West, the strategic surprise of the 21st may be its dispensability.

That all this occurs within the purview of the single largest holder of America's foreign debt should give pause to public and policymakers alike.

As 2010 dawns, it's worth keeping the simultaneous dawn of the China-ASEAN FTA in mind. It won't affect your life in the short term -- but in the long term, it just might be one of the most powerful forces to shape our world.