At the crossroads

The ongoing trade tension between the United States (US) and China — the world’s two largest economies — continues to intensify as they wrangle for global influence. The trade row has generated a ripple effect on the global economy, including the Philippines which is a long-time ally of the US and is currently trying to strengthen its economic ties with China.

So far, according to recent international media reports, the US has imposed three rounds of tariffs on Chinese goods, totaling more than $250 billion. This covers a wide range of consumer and industrial items, including handbags, rice and railway equipment. China, for its part, has struck back and has set tariffs on $110 billion worth of American goods. China’s list of products subject to levies includes chemicals, coal and medical equipment.

The trade war has already shown signs of economic strain. Some international firms have admitted that they are being harmed from global trade tariffs.

In Asia, according to Moody’s Investors Service, the escalating US-China trade tension will most likely hurt Asian exporters of electronic products to China, including that of the Philippines.

In a May statement, the credit rating agency said that Asia continues to rely on merchandise exports to generate economic growth, with manufacturing-based economies and the region’s two trans-shipment hubs — Singapore and Hong Kong — most reliant on trade.

“The region’s rising intra-regional trade linkages will increasingly define trade patterns in Asia, while the integration of the region in the global economy also shows in rising foreign direct investment (FDI), especially in manufacturing,” Moody’s Managing Director for Sovereign Risk in Asia Marie Diron was quoted as saying in a statement.

“Since the global financial crisis, Asia’s exports to the US and EU have remained largely flat as a percentage of GDP, but intra-regional trade has, by contrast, grown strongly,” Ms. Diron added.

Moody’s Vice-President and Senior Analyst Joy Rankothge, on the other hand, said that China, being at the center of Asia’s trade activity, takes part in shaping the region’s supply chains and is increasingly a source of demand for final goods from Asia, especially for consumption goods.

“Accordingly, the region is vulnerable to a further escalation in tensions between the US and China over trade and technology transfers. Additional US restrictions on Chinese exports, investment and purchases of technology supplies would have an impact the rest of Asia through supply chains,” Mr. Rankothge said.

Given this, further escalation of US-China trade war will leave Asia’s electronics sector the “most exposed.”

In the Philippines, the Philippine Statistics Authority (PSA) reported last October that electronic products continued to be the top exported commodity of the country in the first semester of 2018, with 55.7% share to the total exports. It posted a significant growth of 5.4% from $17.40 billion in 2017 to $18.33 billion in 2018.

The said commodity also remained as the top imported commodities in the same period, accounting for 26% of the total import bill. It increased by 16.9% from $11.53 billion in 2017 to $13.48 billion in 2018.

The PSA also noted that China was the country’s top trading partner in 2018, with total trade worth $14.08 billion or 16.6% of the total trade. Export-wise, the biggest sales came from electronic products at $2.35 billion or 57.3% of the country’s exports to China.

Meanwhile, UBS AG said last July that compared with other more open economies in the region, the Philippines is less likely to be affected by the trade war, but it noted that the dispute could still dampen growth prospects next year. — Mark Louis F. Ferrolino