The escalating US-China trade war

THERE is some dispute over how much the United States-China trade war is affecting the Philippines. President Duterte recently blamed rising prices in the Philippines on the trade dispute, saying global oil prices are up because of the dispute. And this, in the administration view, is the principal reason for the high rate of inflation in our country.

The President spoke out on rising prices as the Philippine inflation rate hit a nine-year high of 6.4 percent last month, just as the US and China were bombarding each other with tariffs that raised prices in the two countries. At the same time, the Philippine peso hit a 13-year low against the US dollar, dropping to 153.8 to $1.

Our country’s financial managers, however, are not so quick to blame the US for the local problem of high prices. They say the Philippines largely has a domestically driven economy, with exports accounting for only 18.8 percent of the Gross Domestic Product (GDP). Philippine exports to both China and the US are thus hardly affected by the trade war.

That tariff war all began when US President Donald Trump complained about the US trade gap of $336 billion last year, with China, its biggest trading partner, accounting for a big part of the gap. His tactic to solve the problem was to introduce tariffs on Chinese goods, so as to reduce US imports from China. He was hoping China would seek to correct the imbalance by importing more US goods.

Instead China responded with tariffs of its own on US goods. The initial US tariffs on $50 billion in Chinese goods was answered with a retaliatory Chinese tariff on $50 billion in US goods. The trade dispute continued to escalate last week as the US President Trump announced tariffs on another $200 billion worth of Chinese imports. China answered in kind and vowed to answer every additional US tariff with an equivalent tariff of its own.

Many analysts say President Trump’s combative actions are unlikely to succeed. China, like most other Asian nations, is sensitive to threats like this. “Face” – reputation, dignity, prestige – is important to Asians. If China were to back down in the face of US threats, it would lose face. It demands that it be given due respect as an equal, not treated the way Western nations used to treat their colonies in Asia.

This is, incidentally, the same distinctively Asian concern for “face” at work in the US dealings with North Korea. When Kim Jong-Un came forward with a statement calling for the denuclearization of the Korean Peninsula, he was expecting a counteroffer of goodwill from the US. The US instead insists on a deadline, on specific steps North Korea will take toward denuclearization.

In the US-China trade dispute, we can expect it to escalate with tariffs and counter-tariffs. In the words of chief economist Sung Won Sohn of SS Economics, a consulting firm in Los Angeles, the US President’s tactics do not work well with China’s way of thinking. Thus we see no end to the trade war unless President Trump shifts tactics to negotiation rather than threats.

As for the Philippines, we may not be feeling the effects of the trade war at this time, but if it continues much longer, it is bound to entangle the rest of the world, including us in the Philippines.