How the US-China trade war is shaping up, and what's at stake for Filipinos 2
China and the US have been locked in a trade war since last year. Art by Chris Clemente
Culture

How the US-China trade war is shaping up, and what's at stake for Filipinos

Since last year, the two economic superpowers have been firing shots directly at each other. And, as expected, it isn’t only the two combatants who stand to lose a lot.
Warren de Guzman | Aug 28 2019

Asian markets are roiled as trade tensions escalate once again between the US and China. It seems this is the new normal. Fledgling investors in the Philippines and other developing nations get hurt by events between the two largest economies. But in this crazy world of high school shootings, terrorist attacks, climate change catastrophes, and endless political intrigue, the US-China Trade war isn’t anybody’s priority, at least not on the street.

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As a Filipino, I am here to tell you this whole situation between Washington and Beijing could spell a lot of trouble for Manila, the Filipino diaspora, and all economic gains ever realized thanks to globalization.

 

What it's all about

In order to understand the ongoing US-China Trade war, we need to understand what it’s all about. In 2016, then Republican Presidential Candidate Donald Trump talked about China during a campaign speech on his jobs plan. Politico has a transcript of the speech, which includes the line “China’s entrance into the World Trade Organization has enabled the greatest jobs theft in history.” He also threatened to use tariffs to fight what he called unfair trade practices. After he was elected, Trump started a study on all US trade deficits, including the largest of them all between the US and China. In 2018 it was estimated at over US $400 billion.

Trump attempted trade talks in 2017, but those talks failed, and by August 2017 he launched a probe into alleged intellectual property theft by the Chinese. Some consider that the first salvo in the trade war, and things have only gotten worse since despite on-and-off talks. Both sides have been raising tariffs on each other's products since 2018.

We won’t go into the tariffs, just know they are being raised on US and Chinese products, making them more expensive and effectively creating new barriers to trade between the two largest economies in the world. Then Trump added a new wrinkle by attacking China based tech company Huawei, banning US companies from exchanging technology with it, while calling on allies to refrain from using Huawei tech due to “security concerns.”

The trade war isn’t limited to just China, despite everyone focusing on the heavy weight bout for the Pacific. Trump has successfully coerced Mexico and Canada into renegotiating the North America Free Trade Agreement (NAFTA) by threatening both with tariffs. He has verbally accosted American companies who have moved production facilities outside of the US to save on labor costs and even taxes. He has even threatened Vietnam with tariffs, after Hanoi successfully lured in companies fleeing China and higher US tariffs.

Trump wants all operations that have shipped away from the US through globalization to come back home. He wants the jobs they provide. He wants the tax dollars they generate. He wants the additional economic activity they create. He wants the technology and innovation from those operations to stay stateside. He wants the US to become the leading manufacturing hub of the world. He wants it all. He doesn’t want to share.

 

China and globalization

There are many, including the Integrated Development Studies Institute (IDSI) who say the US-China Trade War was launched to undermine the ascent of China as a global power. China has been doing great, despite being a communist country in a capitalist world. Based on data from the World Bank, a US-based development bank, China’s GDP has jumped from US $1.2 trillion in 2000, to US $13.6 trillion in 2018. It has been producing the most billionaires. It has launched its own development bank, the Asian Infrastructure Investment Bank, and is attempting to build roads, bridges, airports and seaports in a giant, modern day silk road called the Belt and Road initiative.

Its tech companies, including the aforementioned Huawei and Oppo now rival America’s Apple and South Korea’s Samsung. IDSI believes China is one of the greatest beneficiaries of globalization, and this is why the US is now trying to tear globalization down. However, they also say China has benefitted the most from globalization because of a few key factors, including cheap labor, and total government support for manufacturing and industry. That government support is what Trump calls unfair subsidy, which he claims is making it hard for US businesses to compete.

China’s formula, unfair or not, has made the Chinese a manufacturing powerhouse. Almost everything is made in China. A decade ago, made in China was a euphemism for cheap low quality products. Nowadays, some of the stigma remains, however “made in China” now also refers to affordable, quality tech. It refers to cutting edge 5G telecommunications equipment. It refers to affordable and practical vehicles of all shapes and sizes. On top of that, the manufacturing success of China also turned its giant population into the biggest market this side of the Pacific. Not bad for a communist regime which previously sought to cut poverty through population control and the infamous one-child policy.

 

Who are the losers

Globalization benefited China, it benefited Mexico, and it benefited Vietnam. The Philippines has also benefited greatly. In fact, the Philippines is an early beneficiary of globalization, having been dependent on remittances from overseas Filipinos seeking work across the globe. It has also been an early victim of increased “nationalism” in the name of employment.

Saudization, is a long running program of the Kingdom of Saudi Arabia. Launched in the late 80s, the goal was to return jobs to Saudis, jobs which have been increasingly occupied by foreigners—including Filipinos. The implementation of the program however only really started after 2010, when Saudi Arabia started to feel the impact of falling world crude prices on its oil fueled economy. It picked up steam about five years ago, and falling remittances from Filipinos in the Middle East show OFWs have in fact been displaced. Geopolitical tensions, the so-called Arab-spring, and even increasing incidents of violence against OFWs contributed to the displacement. But Saudization was actual state sponsored anti-foreign labor action.

The US is taking a different approach with its trade war, but imagine if President Trump decided to enact the same policy? He is already tightening visa rules on foreign workers. He has also been brazen in his criticism of foreigners taking American jobs.

Meanwhile the Philippines has been struggling to boost its manufacturing sector. Semiconductors and other electronics already make up the bulk of Philippine exports, and much of these go to Chinese companies for assembly and export to the US and other developed markets. No less than the Department of Trade and Industry has also revealed ambitions to bring manufacturing companies hit by the trade war here in the Philippines. The US already threatened Vietnam for this, would it hesitate to do the same once the Philippines starts exporting more to America?

The US has also been outsourcing a lot of work to the Philippines. It’s not the manufacturing work targeted by higher tariffs, but it is still outsourcing. The Business Process Outsourcing industry includes customer relations call centers, knowledge process outsourcing, animation and computer generated imagery, and even backroom office processes such as accounting or file management. The US is not targeting these right now, but who is to say what they might want down the line? Trump wants more jobs for Americans, and he has shown the lengths he will go to get them.

The developing world will also be a big loser. Trump wants foreigners to stop taking away jobs from Americans. He also wants foreigners to stay out of the US and to look for employment elsewhere. He is attacking on several fronts. He is raising trade barriers to make buying anything imported from overseas more expensive than American made items. He is instituting tougher visa rules and border control to keep foreigners from entering the country. He is even condoning racist behavior. He has redefined nationalism, turning it from a statement of pride and heritage into a justification for hatred and an “us-versus-them” mentality.

This is a difficult situation for the developing world because access to massive markets like China and the US is key to jumpstarting their economic activity. The Philippines can get away with focusing on domestic demand, but our manufacturing and even agriculture is nowhere near where they need to be to boost the economy into developed world status.

 

What happens now?

US President Donald Trump has expressed “second thoughts” regarding his trade war ahead of meeting with other world leaders at the G7 Summit in France. But he has given off mixed signals throughout the duration of this back and forth trade row with Beijing. China meanwhile has become the new voice of globalization, using its new bank AIIB and the Belt and Road initiative to get closer with the rest of the world, including the Philippines. But Beijing has also been met with skepticism as countries like Sri Lanka struggle to pay off Chinese loans, while other projects are bogged down by negotiations, bureaucracy, and other issues.

On a granular level, trust between nationalities seems to have been diminished. The trade war has created an atmosphere of intense competition for jobs big and small, by both employees and companies. It’s a free market, so competition is expected. But it feels like the competition has evolved beyond the good natured kind.

If anything, people are uncertain how to go about competition because the two biggest competitors keep changing the rules. That’s a scary situation for overseas Filipinos trying to find work, Filipino companies trying to belong in the global supply chain, and fledgling investors trying to make extra money through financial markets.