Trump, Biden, and our economy

Today, Americans will choose a new president, and many have asked me what the implications of a Trump or Biden victory would be for the Philippine economy.

We can’t say that our economy has thrived within the past four years of the Trump presidency. For one thing, the trade war he waged with China had the unwanted effect of slowing down our manufacturing sector, after an impressive 7.6 percent average annual growth in 2010-2017 that outpaced the 6.4 percent average yearly overall economic growth in the same period. The manufacturing slowdown in the last two years traces mostly to how the trade war disrupted global value chains, wherein Philippine manufacturers have been active participants. Manufactured goods from China to which we substantially contribute raw materials (like nickel) and intermediate goods (like electronic chips and circuit boards) were slapped with substantial import tariffs that dampened Americans’ demand for them—and in turn, China’s demand for our inputs.

Meanwhile, the same trade war has pushed many manufacturing firms out of China into countries whose exports to the United States are not subject to Trump’s punitive tariffs. We could have benefited from this exodus out of China, but most of it went to Vietnam and Indonesia, where income taxes are lower; transport, energy, and communications infrastructure is better; and political risk is seen to be lower. But this one’s our fault.

Trump had also promised to “bring back the jobs” to the United States, by going after outsourcing and offshoring by American firms and making it harder or at least less attractive for them to do so. He thus nipped the growth of our erstwhile zooming business process outsourcing industry, estimated to have already given jobs to over a million Filipinos. Philippine offshore gaming operators (Pogos) from China took up much of the slack, but these have mostly employed Chinese workers, and domestic benefits have mainly been felt in the real estate industry through demand for office space. Now there are indications that Pogos’ days are numbered as well.

The question now is: Will a Biden presidency bring our economy better days? Even as Trump did not help our economy with the moves he made, it doesn’t necessarily follow that Biden will. In reality, Trump looked more Democrat than Republican in his approach to international trade policy, which was actually a departure from his Republican party’s traditional free market economic philosophy. Indeed, Biden’s camp asserts that Trump did not do nearly enough to bring the jobs back home as he promised, and that the number of jobs “reshored” to the United States last year was lower than what the Obama-Biden administration did in 2016. The Democrats also argue that rather than narrow the US trade deficit, Trump actually widened it, with the US global trade deficit in goods and especially that with Mexico hitting an all-time high, while the trade deficit with China also spiked in July-August.

Biden promises a stick and carrot approach to bringing jobs back home. He will impose a 28 percent corporate tax rate, plus a 10 percent Offshoring Penalty surtax, on profits by American companies producing overseas to sell back to the United States. The surtax will also apply to call centers or services by an American company located overseas but serving the United States, where jobs could have been located domestically. For his carrot, he has announced a new “Made in America” Tax Credit, a 10 percent advanceable tax credit for investments that will create jobs for American workers, particularly those that will: (1) revitalize closed or closing facilities; (2) retool an existing factory to raise efficiency and competitiveness; or (3) be incurred to bring back production or call center and other service jobs from overseas. Biden also vows to expand and tighten Buy America rules for government procurement, and plug Trump’s current loopholes to avoid any of the above.

All told, Biden promises to be better than Trump in doing everything the latter promised that might not exactly be good news for our economy. But we all know there’s so much more that matters, to Americans and to us, in making the choice between the two.

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