AS the “Thinking Class” both here and in the United States try—rather unsuccessfully—to come to terms with new foreign-policy initiatives from President Duterte and President-elect Donald J. Trump, so also are they having problems with both presidents’ international trade ideas.
International trade—exactly like a military conflict—is a war because it is a “zero-sum” game. One nation wins; the other nation loses. Imagine two nations selling goods to each other. Country “A” sells $1 billion to Country “B”. Country “A” has a $1-billion trade surplus; Country “B” has a $1-billion trade deficit. Zero-sum. The best that a country can hope for is to sell more than it buys to and from many countries.
Back in the good old days when a nation’s currency was convertible to silver or gold, a nation could not run a trade deficit for 41 years like the US has. Eventually, it would run out of silver/gold and its currency would be worthless. Alternatively, it could devalue its currency against a precious metal to the point where imported goods would be too expensive for consumers to buy.
But in 1971—45 years ago—the US wanted its cake and to eat it, too, by forbidding the dollar from being converted to gold or silver. However, it kept the dollar from plummeting in value by issuing debt to back the currency. Simplistically, the US borrowed money from China and Japan—the two largest holders of US debt by a wide margin—to buy their exports.
It is like some idiot at the bank continuing to increase your credit card in spite of the fact that you could never pay off the debt. In this case, the “idiot” was the US Congress raising the government debt ceiling. In 1971 the most the government could borrow was $430 billion. It is now $18 trillion.
In order to “win” a trade war by achieving a trade surplus, a country must reduce imports and/or export more. Trump wants to “win” by reducing US imports through “import substitution”, making those goods in the US. He is using a “carrot and stick” approach.
Ford Motor Co. has canceled building a $1.6-billion auto factory in Mexico because Trump is threatening a huge tax on auto imports. The risk of building that factory and losing any cost and competitive advantage is too great. That’s the stick.
The carrot is that Trump is proposing a huge reduction in corporate- income tax by more than half to 15 percent. This would offset much of the advantages of companies setting up operations outside the US.
So how does the Philippines figure into “Trump’s Trade War”? In spite of all the worry and whining, the Philippines does not even show up in the top 15 countries that the US has a trade deficit with. Even including what the US must spend to support its call center/business-
process outsourcing operations here, the deficit the US carries with Indonesia is 2.5 times as large. Mexico’s is twice as large and Vietnam runs a trade surplus almost 10 times as large with the US as does the Philippines.
But what about all those Philippines call-center jobs? Currently, there are 40 million Americans officially unemployed, underemployed, or “discouraged” and not looking for work. If all 1 million local call-center jobs went back to the US, the impact would be minimal. And besides, why work at a US call center for the same wages as at McDonald’s where at least you get free food?
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