The Philippines gets its independent economic policy

The bicycle theory of trade dictates that international trade keep moving lest it topple and fall. This unfortunately resulted in some sectors increasing the drama at every economic development, from each new WTO Ministerial meeting or media’s gleefully grim reporting of the US-China trade war.

The truth, as always, is a bit media shy.

Something is happening or may happen that could affect international trade but whether international trade drives it is another matter.

“The ‘trade war’ is only a symptom of the disease,” business expert John Mangun recently wrote. Citing Mark Carney, the governor of the Bank of England: “Past instances of very low rates have tended to coincide with high risk events, such as wars, financial crises, and breaks in the monetary regime,” Mangun insightfully points out that “global average interest rates are at a 5,000-year low.”

However, the culture wars, particularly the effect on the family and sexuality worldwide, is another profound, if not equally ominous, harbinger.

Which leads to doubts about China’s supposed importance as far as the Philippines goes. At least, if the supposed experts are to be believed.

And yet consider, at least as far as international trade is concerned, that China does not even make our Top 3. The US remains the biggest (and interestingly, fastest growing in recent years with its upswing of 9.1%) at $10.6 billion (representing 15.6% of total Filipino exports). Hong Kong (currently testing China’s will) follows at $9.6 billion, then Japan at $9.5 billion.

China’s receives $8.7 billion of our exports but rams us with imports of around $22 billion, posting the Philippines highest trade deficit at $13.9 billion.

Interestingly, we have a surplus with Hong Kong: $6.4 billion, followed by the US at $2.2 billion.

One number that is interesting is that when the trade of Germany, the Netherlands, and France are combined, they approximate $6.4 billion, roughly making the EU our 5th biggest trading partner. Combine that with the fact that we have surpluses with Netherlands ($1.8 billion), Germany ($301.7 million), Hungary ($157.3 million), the Czech Republic ($142.9 million), and Poland ($141.7 million).

Another significant fact is the health of our trade portfolio: our biggest trading partner, the US, merely constitutes around 16% of our exports, with a substantially equitable distribution amongst Hong Kong (14.2%), Japan (14%), China (12.9%), and Germany/ Netherlands and France at 9.6%.

China, on the other hand, is fairly locked in with its trade war adversary the US, the latter representing 19.2% of its exports (with a surplus of $323.7 billion). The remaining Top 4 look fairly small in comparison, with its estranged Hong Kong leading at 12.1%, then Japan 5.9%, South Korea 4.4%, and Vietnam 3.4%.

Investment-wise, China is touted as 2018’s biggest investor but (as Santander reports) such is “mainly due to the construction of an iron and steel plant by the Chinese Hesteel Group (HBIS) in southern Philippines.” Otherwise, that much needed FDI still flows reliably from Singapore, the US, Japan, the Netherlands, and Malaysia.

Thus, the added significance of President Duterte’s recently concluded and apparently successful Russia trip, which BusinessWorld reported resulted in “business deals worth about $12.57 million,” ranging from nuclear power, tuna, sardines, coconut products, wristwatches, vehicles, and medical technology.

Also, “total trade between the Philippines and Russia last year grew 42% from a year earlier to $1.36 billion. Philippine exports to Russia rose to $86 million last year from almost $70 million in 2017.”

More intriguingly, was Duterte’s invitation for Russia “to participate in the massive ‘Build, Build, Build’ infrastructure program especially in transport and railway construction where Russia has high expertise.”

The infra invite is intriguing because it comes almost simultaneously with Japan and the EU’s infrastructure agreement, which (as Deutsche Welle reports) is envisioned to “build infrastructure in sectors such as transportation, energy and digital services to improve connectivity between Europe and Asia. The agreement is part of a broader EU plan to strengthen economic and cultural ties between the two regions.”

The agreement is widely perceived as a counterbalance to China’s “Silk Road” ambitions, with both Japanese Prime Minister Shinzo Abe and European Commission President Jean-Claude Juncker stressing the need for the projects to “financially sustainable, provide ‘rules-based connectivity,’ foster ‘free and open’ trade and a ‘mutually-beneficial’ relationship.” This directly addresses criticism hurled at China for “creating mountains of debt” and “of strong-arming poor countries through predatory lending as part of its BRI (Belt and Road Initiative),” as well as “concerns about the Chinese-backed projects falling short on environmental standards.”

Or as Juncker puts it: to have economic development without reliance “on a single country.”

The Philippines should get in on this agreement. Because, despite the machinations by some Filipinos to have the country placed in the pocket of China on top of its attempts to grab our territories, the Philippines under Duterte suddenly found itself in a favorably independent economic and trade policy position.

We should build on that and hopefully translate it to an independent foreign security policy position.