THE late Ka Blas Ople used to describe the totality of the Philippine-US relationship in a single sentence: chief armorer, main trading partner and dominant cultural mentor. The middle, main trading partner is no longer true, but even with that diminished trade role, the US still is one of our major trading partners.
Our trade with the US, and the trade of the broader world with the world’s biggest economy, will surely be upended in a dramatic way after Donald Trump’s return to Washington, D.C., next year. His main economic plank is the imposition of a 60 percent tariff on all goods imported from China and anywhere from 10 to 20 percent on goods coming from other countries. He calls tariff “the most beautiful word in the dictionary.”
While there are reams upon reams of state-issued statements on preparing for typhoons and other natural disasters — there is even a plan to create a specific department on disaster management and preparation amid the fund-draining bureaucratic bloat — our state mandarins have been largely silent on how to deal with Mr. Trump’s tariffs. Economists, except the cranks and Trump sycophants, have studied the impact of the tariffs on global trade, and they have a single verdict: disastrous. US consumers in the Bottom 50 will be hit by higher prices of basic consumer goods because producers and sellers normally pass on the higher tariffs to the consuming public. Even a 10 percent tariff on goods will send shock waves across the economies of major and reliable allies.
Has the economic cluster in the Cabinet of President Marcos Jr. modeled the impact of a 10 percent tariff, the minimum under Mr. Trump’s tariff plan, on Philippine exports to the US? Filipinos in the US send anywhere from 40 to 50 percent of total yearly remittances to the country. And in case these senders are hit by an economic squeeze due to Mr. Trump’s tariff plan and send less hard currency to their next of kin in the Philippines, what adjustments will be made?
There are other areas where the impact of any tariff imposition by the Trump government on Philippine exports there, all negative, would be felt. How to counter or neutralize these is clearly not top-of-mind priorities of the government. In that sense, we are a global outlier. The best economic minds of nations and regional blocs are currently preparing for the impact of the Trump tariffs, and taking the obvious lead in that area is the European Union.
The EU first policy option is to use the appeasement strategy the bloc employed during the first Trump term when EU leaders tried to run around the tariffs levied by the Trump administration on European steel. This time, the EU leaders will propose increased acquisition by the bloc of US weapons, US LNG and other major US exports in exchange for tariff exceptions. The leaders of these US sectors are close to Mr. Trump, and they may sway Mr. Trump to accept the exchange.
The long-term plan of the EU is, of course, propping up the bloc’s economic muscle up to the point that it can compete with the economies of the US and the second biggest economy, China. You will never hear the word “autarky” spoken in relation to the dream of both competitiveness and efficiency. But you will often hear the word “resilience.” Renowned European economist Mario Draghi, who was asked to write a comprehensive strategy toward that goal of EU resilience, has proposed many steps. One involves spending from 750 to 800 billion euros a year to enhance competitiveness, support tech and innovation startups and support other critical industries that have yet to catch up with their US and Chinese peers. The proposal would translate into a 5 percent yearly increase in the bloc’s total investment-to-GDP ratio.
On the political side, Draghi has recommended that the decision-making within the bloc should be approved with a simple majority vote, not the current unanimity, to speed up the decision-making process. Bridging the skills and innovation gap and ably competing with the talents of the US and China are also imperative, according to Draghi.
In the Asean, the one most vocal about its post-tariff plans is Malaysia. Instead of confronting the planned tariffs and their implications to trade head-on, what it is doing right now is preparing for the anticipated movement of US companies based in China into other host countries. Malaysia is offering itself as an alternative location, and specific freeport zones are being readied for US firms that may relocate out of China.
A 60 percent tariff on all goods from China will create major economic friction between the two major economic powers, and the inevitable result would be the relocation of China-based US firms. In case of a mass exodus, Malaysia is prepared. We can’t say that of our freeport zones, with their umbilical cords tied to the POGOs and online gambling.
China is the sphinx-like creature in the current preparation for the Trump tariffs. But we can be sure of one thing. The planned tariffs on Chinese goods of 60 percent will force China to find markets for its goods elsewhere — which will mean a deluge of cars from China, with more than a dozen brands currently choking the Philippine market and overhyped, of course, by the motoring press.
