Along with violent domestic divisions and new nuclear risks, the White House has begun to “unilateralize” the postwar multilateral trading regime. What will be the impact on the Philippines?
RECENTLY, President Donald Trump called for an investigation into China over US intellectual property (IP) practices and technology transfers.
In turn, US Trade Representative Robert Lighthizer, a veteran Reagan administration trade hawk, opened an investigation against China under Section 301 of the Trade Act of 1974. The investigation will not immediately impose sanctions but it could lead to steep tariffs on Chinese goods.
Trade pragmatism is now dead and the path has been paved for trade wars.
Toward trade conflicts with China, Nafta, and NATO
After the Trump-Xi Florida summit in early April, the US and China announced a 100-day action plan to improve strained trade ties. Yet, only two weeks later, Trump issued a presidential memorandum, which directed Commerce Secretary Wilbur Ross to investigate the effects of steel imports on national security.
That caused extraordinary unease in Europe’s NATO capitals. By mid-June, European NATO leaders launched a highly unusual lobbying campaign against an anticipated US crackdown on steel imports which, they said, would hit US allies more than China. Some EU leaders suggested retaliation, and consensus crumbled at the G20 Summit.
When the Trump administration’s first US-Sino Comprehensive Economic Dialogue (CED) ended in Washington in late July, no joint statement was released.
A simple scenario was that a major trade conflict now overshadowed the US-China ties. A more nuanced scenario was that, while the Trump administration was willing to penalize the Sino-US economic dialogue over slow progress and North Korean geopolitics, it was willing to capitalize on the CED’s “demonstration effect” in the North American Free Trade (Nafta) talks and bilateral trade reviews.
But in the past week or two, so it seems, the White House has opted for a trade war scenario.
Yesterday deficits, today tariffs, tomorrow technology
If the Trump administration plans to use steel as a national security threat, the focus will be more on Nafta rather than China or Germany. China produces half of the world’s steel, but its US market share in steel is less than 2 percent. The major steel players in the US market are Canada (17 percent) and Mexico (9 percent).
However, if Trump plans to move further to imported aluminum, semiconductors, paper, and household appliances, China and other major importers will become targets as well.
The new debate about intellectual property and technology transfers suggests that the friction is escalating and broadening. When President Trump directed the US Trade Representative Robert Lighthizer to open an investigation into China’s intellectual property (IP) practices, including forced IP transfers and theft, he opened a Pandora’s Box.
The investigation process reflects the intimate linkages between the investigation and the US intelligence community. The IP ceremony was attended by Admiral Dennis Blair, co-chair of the Commission on the Theft of American Intellectual Property. Blair is former US director of national intelligence and a retired Navy admiral who served as the commander of US forces in the Pacific region.
Following Trump’s order, the Chinese commerce ministry complained that it represented “strong unilateralism” that violated the spirit of multinational trade agreements. Yet, that’s precisely what “America First,” Trump’s trade platform, is all about.
“This is just the beginning,” Trump told reporters after he signed the executive memorandum. It sounded like a warning.
As the US opened the Nafta talks only a few days later, the Trump White House set a tough tone with Canada and Mexico.
The impact on the Philippines
Today, more than 60 percent of the Philippines’ exports go to Japan, the US, China and Hong Kong. The US is the country’s second-largest export market, with which it has almost a $1 billion surplus.
As President Trump is rebuilding US trade policy on deficit targeting, all countries that have a major surplus with the US are under scrutiny, particularly Canada, Mexico, China, Japan, the UK, Germany, and South Korea. Relative to this group of economies, the Philippines’ surplus is relatively low.
The new trade pressures are likely to reverberate in foreign direct investment (FDI) flows as well. In FDI, the US has historically been a major player in the Philippines and remains the third-largest investor in the country, along with the Netherlands, Australia and Japan. Since the Philippines remains vital to the US strategically, US FDI flows are likely to prevail.
Moreover, Trump is dramatically tightening immigration policy. Since most overseas Filipino workers and residents live in the US, they will be exposed to headwinds, especially those who are considered “illegal.” If the new US policy will cause broader repercussions—not to speak of retaliations—in global trade, investment and migration, the status of Filipinos could become more fragile in Europe as well.
However, President Duterte’s re-balancing of the Philippines’ foreign policy is likely to reduce adverse pressures in trade and investment. Increasing trade and investment with China and the Asean nations has potential to make the Philippines less vulnerable to policy shifts in the US and other advanced economies.
In the near term, unless President Trump’s new policies are undermined (in this scenario the Mueller investigation would result in calls for Trump’s impeachment), the post-1945 world is about to change—and not for the better.
Dr Dan Steinbock is the founder of Difference Group and has served as research director at the India, China and America Institute (USA) and visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more, see https://www.differencegroup.net/