A trade protectionist stance by Donald Trump could affect the Philippines’ exports to America, the second largest market for our products (16 percent of the total), plus exports to other Asian countries especially China (10 percent) and Japan (21 percent, the largest market for our goods) which are inputted to the production of goods with America as their final destination. But the Philippines has one of the smallest proportions of its economy tied to exports—only 28 percent. In most emerging Asian market economies, it ranges from 60 percent to 175 percent, except for China, India and Indonesia which have slightly lower proportions than the Philippines. So, it can sustain growth and outgrow others in the region through domestic demand drivers, such as household consumption and infrastructure spending, and service exports such as tourism, OFWs and BPOs.
The threat to penalize US companies with production facilities abroad would also affect net foreign direct investments from it, America being a major source of FDI in the Philippines in the past two years (almost $2 billion). But it could be replaced by China, and even Japan (the No. 1 source of net FDI in 2016 at nearly $900 million in the first half), particularly if the deals signed by President Duterte with these two countries bear fruit. Even 10 percent of what was promised by both countries would be more than enough to cover any US loss.
Nonetheless, if Trump insists on his protectionist policies he will be at odds with major US companies with overseas operations which are capable of lobbying Congress to resist trade restrictions. He has said he is for free trade but believes the trade agreements being crafted such as the Trans Pacific Partnership put America at a disadvantage. So it’s not clear where he stands. The sense I get is that he’s a shallow thinker, and sees only direct impacts, not the ramifications, of actions taken. Worse, he doesn’t seem to be a man who accepts dissent; his ego won’t allow it.
The announced 20-percent tariff on Mexican imports, if it’s enforced (the conditions set under the World trade Organization ratified by Congress may stop him), is a frightening indicator of where he is heading. The dislocation would be immense. It’s the beginning of a trade war with one country, but who’s next?
The US-led TPP is now in tatters. Are deals in Europe next? An impost on fine German cars that go there seems almost inevitable if he continues this way. And the rest of the world won’t be immune from it. As costs of products into America soar (through tariffs and dollar strengthening), so will the cost of manufacture. US products and services will cost more.
Trump’s demand to negotiate one-on-one deals with countries will take years and sow confusion in markets worldwide.
Asian countries will have little option but to boost trade and distribute wealth among themselves, and shift their focus to Europe, the Middle East, even Latin America and Africa. What it will do is create an opportunity for China to strengthen its role as the region’s economic driver. The hegemony that China strives for will be handed to it on a plate by Trump. America will lose economic and, subsequently political, influence in the region. Mr. Duterte’s pivot to China is beginning to look like an inevitable need.
But it’s still early and we could all be proven wrong. Trump could end up being a pragmatist, considering the global picture, shifting from populist decisions and concluding with reasonably sensible economic deals between America and China, and elsewhere. But it doesn’t look promising right now, and building walls—physical and financial—certainly isn’t a good start.
Isolationism/protectionism in business no longer works, and one can only hope that this reality sinks in once he settles down to the job.
The majority (57 percent) of Americans didn’t want him, but their archaic Electoral College gave him to them. Now they, and the rest of the world, must live with him. We could be in for a traumatic period.
How does the world trump Trump?
E-mail: wallace_likeitis@wbf.ph. Read my previous columns: www.wallacebusinessforum.com