Romeo Ranoco / Reuters Workers hang on ropes as they assist heavy machinery in arranging cargo containers at a shipping yard in Cavite city, south of Manila July 23, 2015.

Tamed Tigers, Distressed Dragon

How Export-Led Growth Derailed Asia's Economies

Of all the unprecedented things that have happened during the global economic crisis, perhaps the most startling and ominous so far occurred in early 2009: shipping rates between southern China and Europe temporarily fell to zero dollars. As consumer demand in the West dried up and exports dwindled, brokers actually waived the transport fee and only charged a minimal handling cost. By April, hundreds of empty ships, representing over ten percent of the world's cargo capacity, floated idly in Asian waters. After traffic in South Korea's Pusan Harbor, one of the world's busiest, dropped by 40 percent in March, the port ran out of space to store the 32,000 unused containers that had piled up.

The collapse in shipping is more than simply a proxy for the woes facing the global economy; it also underscores the degree to which Asia is bearing the brunt of the global slowdown. On an annualized basis, Taiwan's exports shrank in the last quarter of 2008 by 42 percent, and its industrial production fell by 32 percent -- the latter a bigger annual decline than the United States experienced in the Great Depression. Japan ended 2008 with its first annual trade deficit in almost 30 years. This spring, its industrial production retreated to the level of the early 1980s. Singapore's patriarch, Lee Kuan Yew, has predicted that the city-state's economy may shrink by as much as ten percent in 2009, the steepest contraction since its independence in 1965.

To be sure, trade is starting to improve, and government stimulus programs have produced a pleasant blip. But the underlying problems have not gone away. Even China, on track to achieve GDP growth of between six and eight percent this year, has seen its growth rate, which was 13 percent in 2007, fall dramatically. Across the region, economies that just a year ago were celebrated for their consistently strong performance have stalled or gone into reverse.

This was not meant to happen. Asia resisted the financial follies of recent years. The region's financial institutions largely eschewed the toxic assets that

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