The Philippines in a trade war

IT WAS Carl von Clausewitz who said “war is merely the continuation of policy by other means.” Trade wars are no different.
And when one says policy, it also inevitably means politics. And there are good politics and there are bad politics. Unfortunately, we seem to be bafflingly veering towards bad politicking in relation to the current trade spat between the US and China.
As mentioned previously by this column, with every country having business in other countries, as well as loans given and taken between those countries, what kind of trade war can that be?
Besides, the “trade war” is not new. International trade has always been a “war,” which is essentially a competition between countries for certain industries. The theory is that countries will all be pushed to those industries that they’re relatively good at and away from those that they have no way of succeeding in. Ultimately, the consumer is supposed to win.
Nevertheless, trade theory regularly bumps into certain uncomfortable realities. Some countries may not be competitive. Or even more fantastically but true: some countries are actually uncomfortable with the idea of competing.
Also, the idea that countries will welcome moving away from economic areas that they’re not relatively good at — logical as it may seem — is oftentimes unacceptable to many countries. Witness the Philippines in relation to rice or France in relation to agriculture.
So when the Trump administration decided to launch punitive tariffs against China, the Philippine reaction should be to look for opportunities and not radically take sides.
When Trump announced the possible withdrawal of the US from the World Trade Organization, many — even within the Philippines — pounced on his declaration as proof of the US lack of commitment to free trade. Some weirdly proposing that the Philippines further bind itself with the US’ chief rival (i.e., China) because of that.
Which is interesting because since when — except for Philippine policy makers probably — have people (or countries) been committed to free trade? Trade has always been a means to advance development or national interest. It was never the end.
Trump in reality is right: if countries truly believed in free trade, then trade regulations (and the WTO) are not needed.
Hence, to tie ourselves to China (at the expense of continued good relationships with the US and Europe) as some domestic commentators and policy makers would have us do is fantastically imprudent. For several reasons.
China itself is having problems, particularly in relation to its debt levels, with astronomic levels of loans fed to State-owned companies. And this coming at the exact time that the US is leading the world in competitiveness, with its unemployment and GDP showing highly favorable numbers.
As Foreign Policy puts it (“China is cheating at a rigged game,” Aug. 8, 2018), “most Chinese remain quite poor,” and cites a Gallup report showing that Chinese median household income, adjusted for purchasing power, is $6,180, seven times lower than the $43,585 in the US.
The domestic situation has become so bad in China that “the government no longer releases statistics on the number of strikes and protests, and the official media outlets rarely cover them, but there is little doubt that discontent is both broad and deep.”
The trade war further compounds this social unrest, with China’s consumers needing to cut back on spending as rising housing rentals eat into disposable incomes. This matters as consumption makes up almost 65% of China’s growth.
And much the same way that US President Ronald Reagan’s amped up spending in the arms race with the USSR led to the latter’s demise, the US’ trade war with China revealed how little chips the latter has to play with and exposed China’s vulnerabilities, particularly its simmering domestic social unrest and floundering bureaucracy.
Several other countries are also showing suspicion of China’s foray into the global economy, particularly with regard to the so-called “debt trap.” Malaysia already decided to shelve three projects it has with the Chinese; with Pakistan, Maldives, and Sri Lanka exhibiting regret in being financially in so deep with China.
How then should the Philippines react to the “trade war” between the two large economies? By maintaining our independent foreign policy, as mandated in the Constitution, but vigorously standing up for our democratic values, belief in human rights, and the rule of law. Our allegiances and international agreements must be reflective of this.
Otherwise, no one will respect the Philippines.
We must maintain focus in developing our competitiveness, which means lesser regulation and easing taxes. We must eagerly remain open to trade talks with other countries but — considering doubts as to whether our bureaucracy can handle further international obligations — continue to be noncommittal to entering into such.
Of course, before all that high international chess game stuff, we need to fix first the embarrassing fact that we’re an archipelagic tropical country plagued by rice and fish shortages, and bad traffic both in our roads and runways .
 
Jemy Gatdula is a senior fellow of the Philippine Council for Foreign Relations and a Philippine Judicial Academy law lecturer for constitutional philosophy and jurisprudence.
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