PH can't risk trade war with China, says business group

By David Dizon,

Posted at Jun 13 2011 12:01 PM | Updated as of Jun 14 2011 07:02 PM

MANILA, Philippines - The Philippines cannot risk a trade war with China because its economy is heavily dependent on Chinese goods.

Edgardo Lacson, honorary chairman of the Philippine Chamber of Commerce and Industry (PCCI), said the call of Albay Gov. Joey Salceda to boycott all Chinese-made products will have severe repercussions on the Philippines.

"A boycott only sounds good for Filipinos but we must remember that our entire economy is connected to China, which is the second largest economy in the world... It is hard to predict the fallout from that boycott movement because there will be a backlash. We will be the ones who will suffer in the end. We prefer a diplomatic solution because we cannot contain the political repercussions," Lacson said in an interview on radio dzMM.

Lacson said the country's exporters rely heavily on Chinese products, and will be severely affected if a boycott is enacted. He also noted that China's own allies might retaliate against the Philippines.

"There will be a major effect because China has its own allies who might retaliate against us and boycott Filipino products. What will happen to us then? We are not alone anymore. No country is an island by itself," he said.

The PCCI chief said the Philippines need only look at the 1929 stock market crash to see the negative effects of a protectionist policy. He said protectionist policies led to the Great Depression and eventually sparked a world war.

Salceda on Sunday called on all Filipinos to boycott China-made products in response to Beijing’s bullying of the Philippines in the disputed West Philippine Sea.

“Let us boycott made in China products, buy Filipino. Let us hurt them where it counts,” Salceda, an economist and close political ally of President Aquino, said.

Salceda said based on official records, the country imports $7 billion worth of products from China and exports about $6 billion worth of products, which translates to a trade deficit of nearly $1 billion in 2010.

The Philippine economy, however, could be paying much more “since it is well-known that China is a major source of cheap smuggled goods which find their way into the wholesale and retail centers of Divisoria,” he said.

Salceda also urged Filipinos belonging to the upper-income classes to postpone their shopping binges and tours to China, Hong Kong, and Macau.

Trade war to affect inflation

For his part, University of the Philippines professor Benjamin Diokno said a trade war with Beijing could affect overseas Filipino workers in China.

He said a boycott of China-made products will not impact China very much but will affect the Philippines even more.

"Talo tayo kasi we are just a drop in the bucket to them. We are talking of trillions and trillions of dollars. The Philippines is just a minor market to them. Our inflation rate is low because we get a lot of cheap goods from China," he said in a separate DZMM interview.

"Our poor workers will be affected by this. The word wars do not matter to them. What is important to them is they can buy cheap goods," he added.

Diokno said the Philippines also exports electronics to China, which the Chinese assemble and then ship to the rest of the world. He said a similar boycott by China on Philippine-made products would affect the country's export industry, of which half are electronic products.

He also noted that the Philippines is heavily indebted to China. "We have half a billion in loans and we are still looking for financing. They have trillions," he said.

Diokno urged the government to seek a diplomatic solution to tensions in the Spratly Group of Islands. He said that instead of urging the United States to intervene, the Philippines should look to the Association of Southeast Asian Nations (ASEAN)+3 to solve the military tensions in the South China Sea. With a report from Philippine Star