WHERE TO WITH PHILIPPINE BILATERAL TRADE?

Please allow me to share with you a recent report by Moody’s Analytics, which I believe is very relevant particularly to those who are very concerned with the ongoing trade war between the United States and China. Essentially, Moody’s Analytics noted that “US trade policy has the potential to do more harm than good for US manufacturing and the broader economy, particularly if more protectionist policies are implemented by the US or if its trading partners retaliate.”

The report, titled “Pride and Protectionism: U.S. Trade Policy and Its Impact on Asia,” offered three trade scenarios and their resulting impact on US, Chinese, and the Asian economies. The report used the “Moody’s Analytics Global Macro Model,” which reportedly covers more than 70 countries linked via trade flows, foreign direct investment, commodity prices, and financial markets.

SCENARIO 1: EXPECTED TARIFFS (50% PROBABILITY)

The first scenario assumes the current US tariffs on $311 billion of imported goods, with no further retaliation, and tariffs on $134 billion of US exports. If this is the extent of the tariff increases, then while not good for the US and global economies, the overall impact will be limited.

• US: Real GDP would fall just

over 0.13 percentage points at the peak of the impact a year from now, and 200,000 jobs would be lost over the period. The economic impact outside of the US will be comparable.

• China: GDP growth would fall

by 0.03 percentage point in 2018 to 6.67%, and in GDP in 2019 would be 0.09 percentage point below the no-tariffs baseline to 6.28%. The unemployment rate would remain at baseline levels through 2023, but consumption would soften and drive down house price growth by 0.14 percentage point in 2019 to 2.76%. China’s stock market would be most affected as retail investors continue to pull out of the equity markets.

• Asia: The rest of Asia is not

immune, but the hit to GDP growth would be negligible: real GDP growth would decline by only 0.02 percentage point in 2018 and 0.08 percentage point by 2019, impacted mostly by exports.

• Specific sectors: However,

reduced global trade flows would drag on commodity prices and have a pronounced impact on commodity export-oriented countries such as Australia and Indonesia. A slowdown in region-

al demand would also hurt India’s petroleum-related exports.

SCENARIO 2: THREATENED TARIFFS (40% PROBABILITY)

This scenario assumes that all tariffs that US President Donald Trump has threatened are implemented, including a 15% average tariff on $800 billion in US imports. This total includes $275 billion in vehicle imports subject to a 25% tariff. This scenario also assumes a 15% tariff on an additional $475 billion of US exports. If actually implemented, close to one-third of all imported goods into the US would be subject to higher tariffs. Assuming that impacted US trading partners would respond with in-kind tariffs on US goods, the macroeconomic consequences would be more serious.

• US: Real GDP would decline by

0.5 percentage point and employment by 700,000 jobs at its peak.

• China: GDP growth would

fall by 0.07 percentage point in 2018 to 6.62% and in 2019 would be 0.42 percentage point below the no-tariffs baseline at 5.95%.

• Asia: Real GDP growth would

decline by around 0.06 percentage point in 2018 and 0.38 percentage point in 2019 before recovering in 2020.

•Specificsectors:Economiesthat

are important tech hubs throughout Asia, such as Taiwan, Malaysia, Hong Kong and Singapore, would

suffer from tariffs on Chinese tech

exports to the US simply because of their role in the supply chain.

SCENARIO 3: TRADE CONFLAGRATION (10% PROBABILITY)

This scenario assumes an acrossthe-board 25% hike in tariffs on

US-China trade, coupled with Chinese “qualitative” measures

that complicate doing business in

China for American companies.

• US: Under this scenario, the

US economy would descend into recession by the second half of

2019. Real GDP would decline every province and chartered city. If so, we have close to 100 families, mini monarchies, governing us continuously for a very long time now. Occasionally, a dynasty drops out and a new one emerges to replace it. In this respect, we are still living in the Middle Ages.

If the members of these dynasties are the saviors of the people, what exactly have they accomplished to improve the general welfare, especially that of the poor? From my perspective, none. The country just moves on its own momentum along with the rhythm of global development. Politically, we have not matured; the political system has remained mediocre or even primitive. Political parties have become weaker since the time of Quezon to such an extent that they now do not even make any difference at all. A newly elected president, who usually comes from a dynasty, does not have sufficient political following at the time of his election to push his legislative agenda. But by the time he takes his oath of office, suddenly, traditional politicians of all stripes rally around him.

When he leaves office, the alli

ance breaks up and the players surround the new power. This zarzuela goes on every six years. It shows very obviously that almost all our elected officials, if not all, are motivated by self-interest.

Nowadays, no major political

party can even field a whole slate

of 12 senatorial candidates in an election. The party does not have much say about who its candidates shall be for the House and local

government positions. Whoever

candidate is more powerful gets by 1.8 percentage points by early 2020, costing the economy almost 2.6 million jobs. Unemployment would rise to well over 5%.

• The rest of the global econo

my would also suffer, although a stronger US dollar would somewhat mitigate the impact.

• China: GDP growth would

drop by 1.19 percentage point to 5.18% in 2019 and 0.19 percentage point to 5.64% in 2020. The stock market would also fall sharply, declining by 9.4% in 2019.

• Asia: GDP growth would fall

around 0.24 percentage point in 2018 and 0.92 percentage point in 2019 before recovering modestly in 2020.

• Specific sectors: Under this

scenario, too, tech hubs (Taiwan, Malaysia, Hong Kong, Singapore) would be severely affected, while commodity producers (Australia, Indonesia) would face lower prices. Foreign direct investment would fall in India.

These scenarios become doubly important in light of the report that the trade tiff is now worrying finance ministers in

the Asia-Pacific region. APEC

finance ministers meeting recently in Port Moresby, Papua

New Guinea, expressed concern

that the trade war between the world’s two largest economies was endangering the economy of

the entire Asia-Pacific region.

In a statement, the ministers said risks to the global economy have

gone up given the “heightened trade

It may be true that similar things happen in highly developed countries. But not to the very wide extent that we do. We have allowed political dynasties to be the norm, not the exception. Moreover, our social and economic settings and the scruples of local politicians are far different from those in developed countries.

his way; if he doesn’t, he switches to another party. There is clearly no intra-party competition that chooses the better candidate.

When the new Senate and

House convene, either chamber does not have a majority party. The chamber members have to organize themselves, of course, to elect the chamber leaders. But they do so not based on party alliances, but by the individual member’s choice. The motivation becomes the pursuit of self-interest and not of ideology, which only a better organized, well-meaning political party can embrace and pursue.

Since after Cory Aquino, the

declared winning candidate did not carry the people’s majority vote. He/She was declared winner

with just a minority vote. We have

never been able to require a second presidential election round to elect as president the candidate who carries the people’s majority vote, very much unlike in many countries. It is quite likely that, had we required a second round, the winner would have been a different person in some of the pre

vious five presidential elections. and geopolitical tensions.” While

this was more in reference to the

US-China tiff, it can also include

the ongoing crises involving Iran and Saudi Arabia that has impact on global oil supply and prices.

In a report on the APEC meet

ing by the Agence France-Presse out of Sydney, as published by the Philippine Star, Papua New

Guinea treasurer Charles Abel was also quoted as warning that “pro

tectionist trends stemming from trade tensions and the buildup of debt are troubling and a real threat to development and prosperity

right around the APEC region.”

“Amid concerns that the Trump

administration was pursuing a strong dollar policy and persistent suspi

cions that China is similarly manipu

lating currency exchange rates to gain a competitive edge, the group did say it would ‘refrain from competitive devaluation and will not target our exchange rates for competitive pur

poses,’” the AFP report added.

Only recently, Trump said his government would impose billions of dollars’ worth of ad

ditional tariffs on Chinese goods, alleging that China has been sys

tematically cheating on globally agreed trade rules, AFP reported. In turn, it said, Beijing is taking retaliatory measures to protect its economy’s growth.

Chinese President Xi Jinping

is expected to visit the Philippines next month. For sure, trade and economic matters will be in the agenda when he meets President

Any attempt to amend the

Constitution creates a ruckus, be

cause vested interests, members of political dynasties, want to be in control of the process. As a result, the likely outcome is either an

adoption of an inferior new Con

stitution or the country remaining to float motionless in time.

Economically, we have contin

uously slid down the list among

our neighbors. We used to be No. 2 in the-Asia Pacific, but now, even among ASEAN countries alone,

we are even lower than Thailand and Indonesia in per capita in

come (GDP), and it appears that

we will continue to slide further down. Vietnam and Myanmar are clearly rising economically and are on the path to overtake us.

At the time I became a new professional, the population of the Philippines was 25 million, and the majority of them were not poor by the measurement standards of the time. Now, at least 30% of our people are poor, equivalent to over 30 million people— more than the entire population of 60 years ago. How did this happen? Something

is terribly wrong! We have been

utterly unable to stop the continuing increase in the number of poor people in our midst. This doesn’t make sense at all.

To make another comparison,

China was a very poor country

sixty years ago and was struggling hard to recover and emerge from a very devastating civil war. Today, it has two-and-a-half times our per capita income. Its poverty rate is much lower than ours (in fact, its extreme poverty rate is expected to drop to 1 percent

in 2018, according to the World

Bank).

Circulation

Duterte. Meantime, BusinessWorld has reported that the Philippines and the US are now working to resolve a number of pending bilateral trade issues, in light of the possibility of signing a new free trade pact in the future. How we move forward with these two developments can make a big difference on our trade fortunes.

I was in Singapore in late 2004. Lee Hsien Loong had just succeed

ed Goh Chok Tong as Singapore’s third Prime Minister, and Goh had

just been named Senior Minister, a post he held until 2011. In a meeting

with Goh at the Istana, I recall him

mentioning Singapore’s effort to attract more investments from the

Middle East.

This was about three years after 9/11, or the September 11, 2001, ter

rorist attack on the World Trade Center in New York, and still the

height of strained relations between the US and the western world and

the Arab and Muslim world. With

US allies having become skeptical of Arab money, investment opportunities for the latter became limited at the time. And, in that crisis, Singapore saw an opportunity and made the most of it.

Today, given the obvious competition between the two world’s two largest economies, the Philippines should also take advantage of the situation to get the best deals

from both countries. While being

a friend to all and a foe to none is easier said than done, now is the time for the Philippines to brush up on diplomacy and negotiating tactics as it tries to put the nation’s

interest ahead of anyone else’s. We

are living in very interesting times. In crises around us, we should realize the opportunities for advancement or advantage.

True, we are currently growing at a respectable rate, driven

by OFW remittances and foreign

jobs moved to Philippine shores — a global development that matches the Philippine condition of excess labor and low economic value. It is a convergence of global development that does not help the Philippine poor, because they do not possess the appropriate education and skills, and a local condition that ironically, but certainly, we do not want to be stuck in if we want to be a reasonably developed economy.

Political dynasties supply the people who continuously have held the power to carry out the responsibility to steer the course of the country’s development. But they are conflicted to be able to carry out successfully the task to achieve the long-delayed betterment of our country and people. Obviously, we urgently need a

change. We need to get rid of the

dynasties in our political system or at least limit them to a minimum where they can no longer block the path to progress. Unfortunately, the political dynasties themselves constitute the decision makers who can make that change happen. A change that is absolutely necessary, similar to taking away the political power from the monarchies of old. But a change that, sadly, appears to be an anathema to the decision makers worse than the devil.

We are trapped!

So, what shall we do? tel. (+632) 535-9940 circulation@bworldonline.com

MIGUEL G. BELMONTE