You’ve heard it often enough in local business circles: “When America sneezes, the Philippines gets pneumonia.”
But what if China, the second-largest economy, gets infected by the US virus? We could only wish that our country doesn’t get wheeled into the intensive care unit.
The United States and China are currently locked in an economic war of attrition. US President Donald Trump, bent on fulfilling his campaign promise of putting America first above anything else, is slapping higher taxes or tariffs on Chinese imports, and China is doing the same to US products. The global economy is now trapped in the whirlwind of number-crunching to cushion the rippling effects of this US-China showdown. The White House already charges tariffs of 25 percent on $250 billion of Chinese imports as part of the protracted trade talks.
Trump recently announced that, on September 1, another round of tariffs would be smacked on Chinese goods as a retribution to Chinese inaction. It appears that the two days of recent trade talks in Shanghai didn’t get anywhere. Impatient, the US announced that it would foist 10-percent tariffs on some $300 billion in Chinese imports that have not yet been subjected to penalties.
It is expected that China will hit back. In what form and how hard it punches is subject to various speculations. The trade balance currently favors China. The US imports more Chinese products than China does from the US (roughly $540 billion versus $120 billion). This appears to place the US in an advantage in the trade war since China cannot match the US dollar for dollar as the tariff battle intensifies. But business is not counting out China because it fears that the Asian giant has an ace up its sleeve that can still inflict damage to the US economy in particular, and to the global economy in general.
The new tariffs involve about $45 billion in cell phones, $39 billion in tablets and laptops, and $5.4 billion in video game consoles.
Finance Secretary Carlos Dominguez III says this amplifies “the economic headwinds we are currently faced with.” He reveals that this new development “will be the subject of our next Economic Development Cluster Meeting.” Without elaborating when such meeting will take place, he hints that part of the meeting will tackle key policy rates.
President Duterte in a recent speech expressed deep concern about the trade war, which he fears is “creating uncertainty and tension.” Socioeconomic Planning Secretary Ernesto Pernia, however, is optimistic that the trade war would have an encouraging effect on the country. He explains that the country could gain millions of dollars in the exportation of electronic goods to the US if the trade war intensifies. “This would alleviate the potential loss of imports from China,” he says.
Based on publicly accessible published government records that I have read, I find some disconnect to Pernia’s enthusiasm.
Consider this: Based on 2018 figures, electronics amount to about 50 percent of Philippine export earnings, and almost 25 percent of its import bill. US electronics firms manufacturing goods in the Philippines, which are eventually fed into China’s profit chain and are consequently shipped to the US and elsewhere, are in the firing line of the trade war.
One of the world’s largest makers of semiconductor chips, Texas Instruments, operates in Baguio and the Clark Freeport and Special Economic Zone. Moog, another US company involved in the design and production of precision devices used in the aerospace and industrial machinery sectors, also does business in Baguio. Electronic products are among the key targets exposed to higher tariffs by both the US and China.
But amid these uncertainties, opportunities could still be had. A recent study by the Asian Development Bank (ADB) reveals that countries in the Asean could realize improved revenues from exports as a result of the trade war.
The study says that the US, instead of importing from China, may choose to import from companies based in countries that are impervious to the new tariffs. But there are a lot of ifs in this proposition. Can the Philippines take advantage of the situation? It all hinges on our knack for pushing investments in manufacturing and attracting foreign investors who are searching for a safe haven from the trade war.
There is already a slew of threats to Philippine economic growth even without the growing trade anxieties between the US and China. As it is, our export sector is still our best bet, if and only if we could hasten the ease of doing business here; spruce up our attractiveness, and actively and sufficiently market export-oriented manufacturers. This crisis, however daunting, could be overcome if our economic team plays our cards right.
For comments and suggestions, e-mail me at mvala.v@gmail.com