Sunday, September 23, 2018
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No Free Lunch

When the elephants quarrel

Will the feared US-China trade war harm us, being among the small bystanders in the global economic arena? How might we be hurt by an escalation of the already ongoing exchange of trade restrictions between the two economic giants on both sides of the Pacific? Or could we actually be benefited by it, as some analysts suggest?

What does it mean to have a trade war? Wikipedia defines it as a situation where “two or more states raise or create import tariffs or other trade barriers on each other in retaliation for other trade barriers.” Perhaps most prominent in the history of trade wars was the American move in 1930 to raise steep import tariffs on some 20,000 imported goods, under the Smoot-Hawley Tariff Act of 1930. Its trading partners led by Canada struck back with tariffs on imports from the United States, causing US exports to suffer a drastic 61-percent drop between 1929 and 1933. This led the US government to repeal the tariffs in 1934. James B. Stewart wrote in the New York Times: “Historians and economists continue to debate the extent of the damage to the global economy, but there is little disagreement that Smoot-Hawley and the ensuing trade war exacerbated and prolonged the hardships of the Great Depression.” Historians even attribute the onset of World War II to the US-instigated trade war, which is said to have contributed to the rise of the Nazis and other fascist parties in Europe.

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What is certain is that no one “won” that trade war, and to this date, hardly anybody believes anyone can. It was for this reason that nations got together soon after the war to forge the General Agreement on Tariffs and Trade, later to turn into the World Trade Organization, now with 164 member-economies. These include erstwhile isolationist states like Cuba (which joined in the very first year of the group’s formal establishment in 1995), China (which joined in 2001), and Vietnam (2007).

The world is now seeing the seeming onset of a new trade war between the United States and China, initiated by President Donald Trump’s unilateral actions since the start of the year to raise tariffs on various goods prominently imported from China. His avowed aim: to cut the huge trade deficit that America has with China, amounting to $375 billion (translation: America imports that much more from China than it exports to the latter). He started with solar panels and washing machines in January, then added steel, aluminum and other goods in March. China responded in early April by imposing higher tariffs on an estimated $3 billion worth of imports from the United States, including pork, wine, fruit and steel pipes. It has also issued a list of 126 US goods to be subjected to new or higher tariffs up to 25 percent, including aircraft, cars and soybeans, seemingly chosen deliberately to hit Trump’s supporters hardest.

What does this tit-for-tat between the two giants imply for us small bystanders? There are immediate trade opportunities that could actually arise, particularly if we could fill the gap on China’s US imports now levied higher tariffs. The Philippines and the other Asean members could take advantage of the free trade agreement signed in 2010 between China and Asean, which waives import tariffs on most products traded between and among them. The relevant question for us and our neighbors, then, is: Are there products China has been buying from America but now subject to higher tariffs that we can supply instead? Pork and fruit stand out in China’s initial list, especially given our demonstrated export competitiveness in fruit (especially banana, pineapple and mango), and in livestock and poultry. There would be many more, and we only need to be strategic in identifying where we can cash in as a US-China trade war transpires.

Still, a general global economic slowdown is bound to ensue if such a trade war between the two largest economies in the world escalates, shrinking overall world trade. This would in turn shrink the scope for growth in large and small economies alike, but more especially the latter where domestic markets are thin. After all, there’s a saying that goes: “When the elephants quarrel, the ants get trampled.”

cielito.habito@gmail.com

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TAGS: Cielito F. Habito, international trade, No Free Lunch, US-China trade war
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