IF YOU follow financial news then one of the biggest news in recent weeks is the trade war between the United States and China.
There are fears that such a “war” could lead to economic problems for a lot of countries, including the Philippines which has significant economic ties with both the United States and China.
To understand the rationale behind this trade war, one must remember that the United States has had trade deficit with China for many years, and the Trump administration wants to change that in favor of his country.
The recently imposed tariffs on Chinese goods and services are meant to be the first step in this process. The idea is to make it harder for Chinese companies to sell their goods in the United States, which in turn will pressure Chinese elites to sit down with American trade officials and discuss a more equitable trade relationship (i.e. no more US trade deficits).
For China, however, a prolonged trade war is bad both politically as well as economically. Any economic problems will lead to political instability. Its stability is based on its ability to deliver growth and a rising standard of living. If the US tariffs undermine these promises then it’s not unreasonable to believe that Xi will lose more power.
Another important point to remember is that China is reliant on the US buying its goods, and because of this, the US has the upper hand in this trade war. One could argue that China could direct its manufacturing capacity for domestic consumption, but such a transition will take time even if it were possible.
President Xi could have placated the United States with minor gestures designed to stabilize the status quo, but his own political situation at home prevents him from doing so. Any attempt to placate Trump will be seen as weakness by those within his own administration, and could further destabilize his situation. Thus, China has no choice but to play by the US’ rules.
Naturally, this means that the US-China trade relationship will have to change, and such changes will naturally affect the Philippines, though only indirectly. The big issue here is that the United States is abandoning its post-world war 2 role of being the market for the world’s manufacturers, and such a transition will have serious repercussions not only for China but for other developed and developing countries as well.
America’s newfound economic nationalism means that they no longer want to sustain the post-war world order for free, and some countries may simply reciprocate, thus further eroding the global order.
Naturally, such changes will radically alter the way global trade is conducted, and it’s not out of the realm of possibility that we may return to a 19th century style diffusion of trade based on political interests rather than profit maximization, and all because of a few tariffs. (jdr456@gmail.com/PN)
