What do we do?

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Rafael M. Alunan III

To Take A Stand

What do we do?

For those who know the drill, disaster response consists of a series of deliberately taken steps — awareness, mitigation, preparation, response, management, relief-rehabilitation, and recovery — to ensure survival and continuity. In a sudden happening, many of those aspects would be overlapping each other simultaneously. In a slowly evolving crisis, there’s time to do all that sequentially.

Let’s take the evolving trade war between the US and China.

As of 2018, the United States has the world’s largest economy and China has the second largest, although China has a larger GDP when measured by PPP. The United States and China have an extremely extensive economic partnership, a great amount of trade between the two countries necessitates somewhat positive political relations, yet significant issues exist.

It is a relationship of economic cooperation, hegemonic rivalry in the Pacific and mutual suspicion over the other’s intentions. Relations were strained by president Barack Obama’s Asia pivot strategy and support for Japan in the Senkaku Islands dispute. President Donald Trump’s threats to classify the country as a “currency manipulator” and strategic competitor have raised anxieties worldwide. Stock markets have gone south in recent days when both began imposing tariffs on each other’s products.

China’s main export markets, in order of importance, are the European Union (20.4%), United States (17.7%), Hong Kong (13.4%), and Japan (8.1%). China’s main import markets, in order of importance, are Japan (13.3%), European Union (11.7%), South Korea (10.9%), Taiwan (9.1%), and the United States (7.2%). Third World countries have long served as a market for Chinese agricultural and light industrial products. China has increased trade and investment ties with many African countries partly to secure strategic natural resources such as oil and minerals.

For the past 20 years, the US-China trade balance has favored China annually and incrementally without let-up. In 1997, China had a favorable balance of $50-billion. In 2007, it was $258.5-billion. By 2017, China was enjoying a favorable balance over the US by $376-billion. America’s exports to China were only $130 billion while imports from China were $506 billion. American companies can’t compete with China’s low costs that have impacted US competitiveness in the global marketplace.

In recent years, China fluctuated between the world’s largest and second-largest economy. It has the world’s largest population. It sets the value of the yuan equal to the value of a basket of currencies that includes the dollar.

When the dollar loses value, China buys US T-bills to support the dollar. In 2016, China began relaxing its peg resulting in currency volatility. China’s influence on the dollar remains substantial.

China is America’s largest lender. Japan is second. As of January 2018, the US debt to China was $1.17 trillion. That’s 19% of the total public debt owned by foreign countries. Many are concerned that it gives China political leverage over US fiscal policy. If China were to stop buying T-bills, interest rates would rise. That could throw the US and the world into recession. And this wouldn’t be in China’s best interests.

Among Southeast Asian countries, the Philippines could be the most affected in the worsening trade tension between the US and China.

In a surprise move that could further escalate the trade war between the two economies, President Donald Trump on Thursday said he has ordered the US trade representative to consider imposing an additional $100 billion in tariffs on Chinese goods. Trump’s pronouncement came after China said it plans to slap $50 billion in taxes on American products.

In a research note dated April 4, RHB Bank Berhad said the trade war’s impact on Southeast Asia will likely be felt through shipments to China that are used as inputs to Chinese exports. The Malaysian bank then explained that the Philippines could be most at risk, as 16.9% of its total exports are part of China’s value chain, compared with countries like Malaysia (11.4%) and Indonesia (10.9%).

The sectors likely to be hit badly from US tariffs are electronics, electrical machinery (computers, etc), and industrial. It appears that the impact on ASEAN, while small, will not be negligible.

Last month, Trade Secretary Ramon Lopez said the Philippines is in “wait and see” mode. Government data show the Philippines’ shipments to China valued at $591.91 million last January, making the Asian powerhouse the fourth top destination of Philippine exports for the month.

The US-China currency and trade wars have been unfolding since the time of President George W. Bush, Jr., perhaps even earlier.

Have we been paying attention? Have our economic managers and business community made it a habit to regularly monitor, assess, plan, and prepare for a bilateral economic war that could quickly zoom to global proportions? How can we best minimize the impact on our economy and people already struggling with poverty and social separation just to survive?

Economic security is human security is national security. Both the public and private sectors go through the ritual of discussing crisis management for natural and man-made disasters. I surmise they know the theory like the back of their hands.

But have they actually put their knowledge into practice in anticipation of worst case scenarios and to take all precautionary measures? An economic crisis calls for crisis management. This one’s been unfolding quite slowly and deliberately. What have we done in response?

Awareness triggers anticipation and foresight. Completed staff work — in this case regular group thinks by those who have power over economic policy — triggers teamwork and performance excellence. We now have a crisis on our front yard. Before it knocks down our door, we’d better be ready with the right mind-set, skill sets, and tool kits to absorb the blows.

If we don’t know what to do, let’s at least have the humility and good sense to outsource the job to those who can ably defend our economy. It may be expensive but that’s a trade-off we’d rather absorb over permanent ruin.


Rafael M. Alunan III served in the cabinet of President Corazon C. Aquino as Secretary of Tourism, and in the cabinet of President Fidel V. Ramos as Secretary of Interior and Local Government.