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Positioning PH in the US-China trade war

/ 05:18 AM September 28, 2018

Last August, $50 billion worth of imports from China were unilaterally slapped tariffs by the United States, with plans for an additional $200 billion tariffs on future imports. China, accusing the United States of starting the “largest trade war in economic history,” reciprocated with countervailing duties.

With regional economies intertwined to both China and the United States through a complex web of international production and supply chains, how does this affect the Philippines, in particular?

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We need to understand that it’s not just a war in trade, but also in tech, currency, investments, etc. The “America First” policy by US President Donald Trump is directed not just at China but also at Canada, Mexico, Russia, Iran, Venezuela, Japan and the European Union. All trade and other agreements are being challenged by the Trump administration to recalibrate the advantages to the United States.

Beyond trade, restrictions have been imposed on corporate and technology investments, on access to financial and commodity markets; along with embargoes and sanctions on specific countries, these have helped cause price spikes and supply chain disruptions.

This positioning for primacy in Industrial Revolution 4.0 is about who will primarily determine the rules of world order in technology, currency, trade and production frameworks.

The inflation hike and exchange rate fluctuations in the Philippines, our current preoccupation (aside from our own logistic and political issues), are mostly due to global oil prices doubling in a few months due to these embargoes and trade maneuvers, the strengthened US dollar due to the increased US interest rates and an exceptionally strong US economy, and uncertainties arising from the trade war. Business strategist Jon Ravelas succinctly describes the psychology of international finance when uncertainty reigns as “Sell now, ask questions later!”

What are the challenges and opportunities for Filipinos? The Philippines is not a major manufacturer, so the effect on us is indirect. Some electronics and semiconductor companies might be affected because we send these products to China, who then sends them to the rest of the world. Most Filipinos are not prepared to go back to low-wage type of manufacturing work, so we should prepare for the technology and knowledge economy through new STEM (science, technology, engineering and mathematics) curriculums and by creating new ecosystems.

As a service-oriented economy, we should restructure our economy to be more diverse, integrated, and of higher quality. We have to retool our industries and our people to be able to make very fast adjustments—speed is king!—to be able to capitalize on these global opportunities.

China, our neighbor, has become the biggest market as well as the biggest supplier of goods and tourism in the world. Indeed, China says it is ready to buy more from the world, including the Philippines. We should be conscious that our Asean allies are also our competitors; the same is true of the world, and they are nimble and organized!

“Build, build, build” has to proceed to increase our capacities. OFW remittances and the BPO industry are currently sustaining our domestic economy, but already Artificial Intelligence is beginning to reduce BPO jobs. We must prepare for the next economic revolution that will surely come.

The New World 4.0. Beyond the trade war, a more fundamental and lasting revolution is taking place where the foundation is education, the stage is technology, the most important commodity is information, and the greatest resource is talent.

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It’s easy to forget that the United States and China have been top trading partners for years and will continue to have a mutually beneficial relationship.  In a tussle, the entrepreneurial “smaller” players will gain. President Duterte’s push for an independent foreign policy may provide a foundation for the country to gain from working with all partners. But we each have to do our part.

Filipinos have to look for opportunities and argue less, consult with the best, incentivize and innovate, act and execute fast, and focus not on disagreements but on constructive, organized steps to progress.

George Siy, Wharton-educated director of the Integrated Development Studies Institute (Idsi), is an industrialist, trade practitioner and negotiator for the Philippines vis-à-vis  Asean, Japan and the United States, and is a resource for international media and think tanks. Idsi’s advocacies have resulted in significant changes in the decisions of organizations, government policy and legislation.

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