For many people, the coronavirus disease 2019 (COVID-19) pandemic is an invitation to pivot to a better place. But what better place? Lest we pivot to nowhere and waste a good crisis, let’s study the signs.

Nissan Philippines closed its Santa Rosa, Laguna assembly plant in March 2021. Honda Cars Philippines shuttered its Sta. Rosa, Laguna plant, in operation since 1990, On Feb. 22, 2020 following a progressive decline in demand. Ford Motor Philippines closed its assembly plant in 2012. Though car assembly plants are headed for the door, Nissan, Honda, and Ford cars will still grace the showrooms, only now the cars are imported from Thailand and Indonesia. Likewise, there used to be three oil refineries in the country. The Caltex oil refining plant in Batangas owned by Chevron was shuttered in 2003 and converted into, you guessed it, a terminal for imported refined oil products! With the Filipinas Shell refinery mothballed in 2020, the only refinery left is Petron, whose owners are threatening to close down unless accorded some tax breaks on imported feedstock. Meanwhile, refined oil importer and distributor, Jetti Petroleum, is set to open its third import terminal in Camarines Sur. Caltex is being strategic: if you can’t beat the importers, you join them. This beeline to the door for manufacturers started long before the pandemic and nothing has transpired to stop it. For all manufacturing, not just car assembly and oil refining, the truth is the opposite of our vaunted tourism slogan, “More fun in the Philippines.”

The closure of assembly plants and oil refineries is the typical harvest of a domestic currency that favors imports. The once vibrant Australian car manufacturing sector blipped out in 2020 in the wake of the strength of the Australian dollar occasioned by the massive growth of exported mineral products (largely coal) to the People’s Republic of China. Dutch manufacturing declined (The Economist, Nov. 26, 1977) starting in the 1970s when the dollar inflows from export of Groningen gas pushed the Dutch guilder to record highs. The same fate befell Spanish manufacturing in the 16th century when gold flowing from Latin American colonies made the Spanish peseta so strong it cheapened imports so causing the wipeout of domestic production. The phenomenon — christened “Dutch Disease” by The Economist in 1977 — happens when the singular success in the export of extracted mineral and/or indigenous resources pushes the domestic currency so high it whiplashes all manufacturing. The export of overseas Filipino workers (OFWs) also administered a Dutch Disease whiplash on Philippine manufacturers. High-value added activities like Agriculture (grains, meats, fruits, etc.) are especially penalized. In the parlance local pork, Agriculture ends up “double dead”: killed first by Comprehensive Agrarian Reform Program (CARP) and then killed again by a pro-import ecology.

The interesting work of Bergsten and Gagnon (2012, 2017), lately revived by Schreiber (NYT, March 2021), revealed the massive loss for the US economy exacted by currency manipulators: one to five million jobs! This is overlaid on a natural tendency for the US dollar to overvalue due to the foreign appetite for US bonds and treasuries as safe haven instruments. Overvaluation is “a war on the workingman,” observes Mike Stomo of the Coalition for a Prosperous America (sic Schreiber). Gagnon (2020) estimated the dollar overvaluation in 2020 at 10-20%. All that translates into a massive trade deficit and massive debt obligation of the USA against the rest of the world. Manufacturing in the USA has been hollowing out so that between 2000 and 2010, manufacturing lost 5 million jobs. Since the massive debt is denominated in dollars, its repayment should not pose a problem for the USA as the issuer of the currency — it can just print greenbacks. But the US dollar is also the global medium of exchange for which the US collects massive seigniorage. Printing greenbacks willy-nilly will erode the primacy of the US dollar and reduce the associated seigniorage. The USA is thus walking a tightrope. Trump’s MAGA fulminated against unfair traders and the bloating trade deficit but he obsessed over the wrong instrument — tariffs — to do the job. The trade deficit has only grown since! President Biden has now pledged to narrow the trade deficit. But how?

Why not a technology-driven response to the challenge instead of a fiscal and/or a monetary one? After all, the USA is still a technology leader. That’s the path favored by Making Things: 21st Century Manufacturing and Design (2012) by the National Academy of Engineering, following the three decades old view initiated by the famous MIT volume Made in America. The technology pathway has not worked. Why? US manufacturers faced two options: either stay and innovate with uncertain returns or relocate offshore and make almost sure profit. With the myopic horizon and shareholder impatience haunting US firms, relocation easily won.

Bergsten and Gagnon are more realistic: manufacturing will stay only if the US becomes a competitive venue for manufacturing. Their recommendation: a “dollar policy” to maintain a desirable value for the US dollar: use taxes to discourage demand for dollars and use tooth-for-tooth countervailing action to discourage currency manipulation. For example, when a foreign country aggressively buys dollars to depress the value of its currency, the US Treasury must aggressively buy that currency to prop it up. And further, the USA must lead a coalition of the supposed victims to confront the currency rogues. Good luck!

The list of countries identified by Bergsten and Gagnon as currency manipulators is interesting: Japan, China, Denmark, Taiwan, Hong Kong, Malaysia, Singapore, South Korea, India, Germany, Norway, and Switzerland. And in 2020, Vietnam. These countries deliberately leaned on a pro-tradeable ecology to attract foreign direct investors, grow their exports resulting in large trade surpluses against the world. But look closely at this list — a veritable honor roll of countries in the pink of economic health! An unintended revelation from Bergsten and Gagnon: the global monetary system is a persistent tragedy of the commons where currency rogues win. With its monetary sovereignty and unhindered by the US-type dilemma, shouldn’t the Philippines be aspiring to join the exalted ranks of currency rogues?

The Department of Trade and Industry, blaming imports of CBU (completely built units) for the closure of local car assemblers, has imposed safeguard duties of from P70,000 to P120,000 per unit or about 10% tariff in 2021. Safeguard measures are additional tariffs against imports; but like the Trump tariffs, they don’t address the root cause of the problem. In 2020 alone, the peso appreciated by about 10%, effectively pre-empting the imposed safeguard duties. The car assembly workers’ union, the oil refiners and pro-agriculture lobby are barking for relief from the wrong agencies. They should be barking at the BSP!

Unless we pivot away from a pro-import to a pro-tradable ecology, the flight of Manufacturing and the double-dead Agriculture will continue and we shall have wasted a good crisis.


Raul V. Fabella is a retired professor of the UP School of Economics, a member of the National Academy of Science and Technology and an honorary professor of the Asian Institute of Management. He gets his dopamine fix from bicycling and tending to flowers with wife Teena.