BY imposing punitive tariffs on Chinese steel and aluminum exports and threatening to apply similar sanctions on 100 or so Chinese products, US President Donald J. Trump has literally unleashed a trade war with the United States mercantilist rival. The response of the stock market of the Philippines and the world was immediate: plunging price indices. There are worries everywhere on how the war is going to develop and affect the global economy. There are even fears that the war can trigger a bigger nontrade war. For those who remember, World War I and World War II were partly fueled by the trade rivalries among the European and Asian powers.
Trump’s action was not surprising. During the US presidential election campaign, he accused China of raping the US. He labeled China as a “cheater” and a currency manipulator. US trade deficit in 2016 amounted to $736 billion, more than half of which were incurred with China. This has prompted Trump to push for bilateral one-on-one trading arrangements, which the US can completely control compared to global (under the WTO) and regional (think of TPP) ones. Trump has also proclaimed a populist “America First” policy, obviously to pacify angry American industries and workers in the American Midwest who have been losing businesses and jobs to China and other countries under economic globalization.
Meantime, what should the Philippines do? Maintain a business-as-usual attitude?
Obviously, this is not an option. We need to brace ourselves for the turbulence and uncertainties that the trade war are likely to bring in. We also need to review and adjust our own economic policies under globalization. In this process, we need to consider the following:
First, the US-China trade war clearly highlights two major realities in the world economy, both of which have serious implications on the Philippines. One, the United States and other developed countries have become more protectionist and have been quick to impose tariff and nontariff trade barriers to protect their own markets and industries, unmindful of their own commitments to the WTO and other trade agreements. Justin Lin Yifu, former chief economist of the World Bank, wrote that one major lesson from the 2008 to 2010 global financial crisis is that all developed countries assiduously maintain their respective “Industrial Policy” with a capital “I.” They cannot and will not allow the collapse of industries “too big” or “too identified” with their history and culture to collapse or disappear in the name of competition.
The other reality is that China, the biggest winner under globalization, is not exactly a free market model. The Chinese economic policy-makers, led by the officials of the Communist Party of China, did not follow the Washington Consensus framework pushed by the IMF and the World Bank. Instead of pursuing the wholesale liberalization, deregulation and privatization of their economy, the Chinese adopted a gradualist approach, maintained tight capital controls, intervened in the foreign exchange market, and like Japan and the Asian NICs, protected its export and domestic markets. The three main complaints of the Americans vis-à-vis China today —subsidized exports, technology piracy and dominance by State-led enterprise—are clearly the results of the foregoing policies, all of which appear to be still in place despite China’s phenomenal progress in the last four decades.
The point is that the behavior of the United States and China tells us that the policy of simply following the neoliberal economic prescription of liberalizing our trade and investment policy regimes and privatizing everything under the control of the government will not automatically lead to a flow of growth-inducing and job-creating investments. It does not work. In fact, we have been implementing the Washington Consensus since the early-1980s (labeled as “structural adjustment policies” or SAP) and yet, our industry and agriculture have remained stagnant compared to our neighboring countries.
So what adjustments are needed? For this author, the challenge is how to do some balancing or rebalancing in economic policy.
First, the diversification of trade and economic relations. The government is now doing this with the efforts of the Duterte administration to forge closer ties with China and Russia. However, we need to be more rigorous in crafting collaboration programs with China, which has been the source of so many products (including shabu) that have wiped out a number of domestic industries, not through the normal course of trade competition but due to the smuggling and dumping of surplus Chinese products. Balancing also means forging similar ties with other non-Asean developing countries.
Second, defining or redefining the terms of Philippine incorporation in the regional and global economic formations based on the country’s industrial and agricultural priorities in the context of Philippine development priorities and national interests. When has there been a thorough and multi-sectoral review and consultation on the results of our membership in the WTO and regional trade agreements, as well as on the outcomes of the policy conditionalities imposed by the IMF-World Bank under the SAP program?
Third, developing the potentials of the domestic market in building up capacity of domestic producers. Meneleo Carlos, a respected industrialist and cochairman of the Bishops-Businessmen Conference, has long been articulating the need to expand production for our own domestic market as part of the overall strategy of growing the national economy. After all, this is what Japan and China have been doing—growing the domestic market side by side with the development of the export market. Also, a market of 105 million is a huge market, which, if fully developed, can spawn endless product innovations. Why allow the foreign producers to dominate this market?
In this context, the position of the Philippine Retailers Association (PRA) opposing the proposed bill lowering the existing capital requirement of $2.5 million to $200,000 for a foreign retailer to do retailing business freely in the country is sensible and logical. These foreign retailers will not be competing with the Sys and Gokongweis but with the country’s micro small and medium enterprises. The MSMEs need technical and credit assistance from the DTI, DOST and other government agencies, not a policy aimed at wiping them out of the market.
Finally, part of policy balancing or rebalancing is the mobilization of capital or savings for growth. For the last four to five decades, this has been reduced to a narrow program of opening up the country to the entry of foreign capital. And yet, the biggest source of capital was and still is domestic capital. Why not a program of mobilizing all productive sectors of the nation, with foreign capital playing a supplementary role. As the Philippine Constitution mandates (Section 1, Article XII): “All sectors of the economy and all regions of the country shall be given optimum opportunity to develop.” Where is the program for this? And by all sectors, we mean not only private corporations but also cooperatives, farmers’ organizations, trade unions, micro, small and medium enterprises [MSMEs], family-run businesses, community-based associations and, yes, OFWs and their families.”
Based on the foregoing, the annual investment priorities listing of the DTI should be overhauled. The list should give primacy to the role and participation of each of the productive sectors of the nation in the economy, particularly in building up priority industries for the country.