Trump is ‘win­ning’ his trade war and Duterte should join in

Business World - - Opin­ion - JEMY GATDULA

What’s funny about this “trade war” are the ironies. Ironic that US Pres­i­dent Don­ald Trump is com­ing off as the pro­tec­tion­ist anti-trade iso­la­tion­ist. Ironic that China is be­ing made to ap­pear by main­stream me­dia as the cham­pion of glob­al­iza­tion sim­ply be­cause the lat­ter hates Trump. And ironic that China’s sup­port­ers in the Philip­pines are at­tack­ing Trump for “win­ning” his trade war, when many of those same Filipinos ad­vo­cated for pro­tec­tion­ist mea­sures few years back.

And that’s not all of it. Trump has warned of the US pulling out of the World Trade Or­ga­ni­za­tion, out of what he per­ceives as the lat­ter’s in­abil­ity to deal with China’s un­fair trade prac­tices. The tac­tic has been col­or­fully de­scribed by the WTO’s Di­rec­tor-Gen­eral Roberto Azevêdo: “This guy comes along, and he be­gins to shake the tree pretty hard. So let’s make sure that some fruits fall. Let’s make sure also that you don’t kill the tree by shak­ing it too hard.”

What the US is qui­etly try­ing to man­age is for China to save face and not lose badly.

But iron­i­cally, by call­ing for a pull­out, Trump has “shaken” the WTO from ir­rel­e­vance; with the EU and Canada lead­ing calls for an up­dat­ing of trade rules which — due to the un­timely death of the Doha Round — re­main es­sen­tially un­changed ever since the WTO was cre­ated in 1995.

But what if Trump even­tu­ally “kills” the WTO?

If that hap­pens, while the US does share part of the blame, par­tic­u­larly for­mer US pres­i­dent Barack Obama, who showed an amaz­ing lack of in­ter­est in world trade, the EU and Ja­pan cer­tainly played a role in its demise, par­tic­u­larly on their in­sis­tence on agri­cul­ture sub­si­dies.

And yet, even if it does go, if the trad­ing coun­tries, par­tic­u­larly the richer de­vel­oped ones, are re­ally se­ri­ous about trade, then the demise of the WTO shouldn’t mat­ter.

Yes, that’s right: be­cause in a world where gov­ern­ments truly be­lieve in trade, then the WTO is ac­tu­ally a su­per­fluity.

It is only be­cause coun­tries mouth trade but im­pose trade bar­ri­ers, ei­ther through tar­iffs, non­tar­iff bar­ri­ers, and il­le­gal sub­si­dies, that a WTO be­comes a ne­ces­sity.

That is why Trump was cor­rect when he said at the G7 back in June: “You want a tar­iff-free, you want no bar­ri­ers, and you want no sub­si­dies, be­cause you have some cases where coun­tries are sub­si­diz­ing in­dus­tries, and that’s not fair. So you go tar­iff-free, you go bar­rier-free, you go sub­sidy-free. That’s the way you learned at the Whar­ton School of Fi­nance. I mean, that would be the ul­ti­mate thing.”

As for the trade war with China, that is more op­tics than any­thing: firstly, China had no way of win­ning the “trade war.” As Forbes’ Panos Mour­douk­outas, in his ar­ti­cle last Au­gust, “China Will Lose The Trade War With Amer­ica, And That’s Good For Its Cit­i­zens,” ex­plains it, China’s “econ­omy is slow­ing, as it faces the ‘mid­dle in­come trap,’ and the Lewis turn­ing point. The in­come trap is a sit­u­a­tion where a coun­try’s growth rate slows down as it reaches mid­dle in­come. The Lewis point is a sit­u­a­tion where the ‘re­serve army’ of la­bor shrinks, push­ing wages and erod­ing the coun­try’s com­pet­i­tive ad­van­tage in la­bor in­ten­sive in­dus­tries. Chi­nese la­bor be­comes ex­pen­sive vis-à-vis In­dia, Viet­nam, and In­done­sia. And that places ad­di­tional pres­sure on the coun­try’s growth. Mean­while, China has yet to de­velop a ro­bust do­mes­tic con­sumer mar­ket that will ac­com­mo­date its grow­ing pro­duc­tion ca­pac­ity.”

Re­gard­ing its con­sumer mar­ket, de­spite China’s claims of be­ing an eco­nomic power, the Philip­pines (and the US) ac­tu­ally ranks way higher in terms of pop­u­la­tion above the poverty line, with China down be­low at 168 out of 171 coun­tries sur­veyed.

What the US is qui­etly try­ing to man­age is for China to save face and not lose badly.

So, while Trump may tri­umphantly tweet that China will “re­move tar­iffs on cars com­ing into China from the US,” that only came after the US it­self agreed not to in­crease tar­iffs on $200 bil­lion worth of Chi­nese goods.

China had pre­vi­ously cut nonUS au­to­mo­bile tar­iffs from 25% to 15%, so the re­moval of the tar­iffs on US cars should make things rel­a­tively square. As it should.

Be­cause while in­deed China’s tar­iffs were ap­par­ently to hit US auto ex­ports, China’s au­tomak­ers are tied up with US car com­pa­nies: thus, Gen­eral Mo­tors has a jointven­ture with China’s SAIC Mo­tor and Ford is work­ing with Baidu,

while Buicks and Cadil­lacs are nu­mer­ously made in China as well.

The point: if the Amer­i­cans are mak­ing money, then so do China’s of­fi­cials run­ning State en­ter­prises.

A true US win over China won’t be about money. It would have to take the form of China start­ing to play by the rules, par­tic­u­larly in­ter­na­tional law, the do­mes­tic rule of law, and hu­man rights.

In the mean­time, if Pres­i­dent Ro­drigo Duterte is se­ri­ous about pro­tect­ing Philip­pine in­ter­ests in the West Philip­pine Sea, then a good way of go­ing about it is to ac­tively seek a Philip­pine-US Free Trade Agree­ment, as well as fuller and proper im­ple­men­ta­tion of our trade agree­ments with Ja­pan.

JEMY GAT­DULA is a se­nior fel­low of the Philip­pine Coun­cil for For­eign Re­la­tions and a Philip­pine Ju­di­cial Academy law lec­turer for con­sti­tu­tional phi­los­o­phy and ju­rispru­dence. je­my­gat­[email protected]­­my­gat­dula. face­­dula Twit­ter @je­my­gat­dula

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