Crossroads (Toward Philippine economic and social progress)
Philippine Star, 16 November 2016


It is an understatement to say that Donald Trump’s presidential victory in the United States took much of the world by surprise. The American presidency is the most powerful job in the world. It has immense responsibility and it could help tilt the way the world goes.

New world directions? What an American president does to promote domestic growth affects also the economies of many countries. The decisions he makes on foreign policy could have serious implications on the course of world affairs.

As a political outsider, some of the views he brought to the campaign deviated widely from mainstream Republican party issues, whether domestic or foreign policy. His campaign promises involved drastic change for American economic policy.

They, therefore, lay open the question of whether the Trump presidency ushers in new and unpredictable directions for the world economy. Some of these are in the realm of economic policy, others involve big power relations (US vs. Russia, US vs. China), and others are domestic in nature: immigration (immigration wall, deportations), economic stimulus, medicare.

A turning point in the world economic order? Trump promised to reverse the outcomes of the major trade agreements that have been negotiated in the past and to scuttle new trade agreements.

This means he will demand changes in the NAFTA (North American Free Trade Agreement) between Mexico, Canada and the US. This would also question the adoption of the TPP (TransPacific Partnership) and any other new trading agreements without introducing protective clauses to protect American interests. He promises to deal with trade with China (at one time he threatened the use of tariffs to contain trade with China) by seeking trade concessions.

All these — and more — have moved The Economist to voice an alarm about the new directions:

“Trump’s victory and the way it came are hammer blows both to the norms that underpin politics in the United States and also to America’s role as the world’s pre-eminent power…. Abroad, he has taken aim at the belief, embraced by every post-war president, that America gains from the thankless task of being the global hegemon.“

“If Mr. Trump now disengages from the world, who knows what will storm through the breach? The sense that old certainties are crumbling has rocked America’s allies. The fear that globalization has fallen flat has whipsawed markets…. Mr. Trump’s victory has demolished a consensus. The question now is what takes its place.”

Is Trump the president the same as the candidate? The hope, of course, is that the governance of Trump the president would be mellower and more pragmatic than the rhetoric of Trump the candidate.

The Economist is not as sanguine or optimistic. It observes that as candidate, Trump was “narcissistic, thin-skinned and ill-disciplined…. The job of the most powerful man in the world constantly entails daily humiliations at home and abroad. … His effectiveness will depend on his willingness to turn the other cheek and work for a deal.”

Commenting on the same issue, Francis Fukuyama, a well-known political scholar said: “I find it hard to conceive of a personality less suited to be the leader of the free world. This stems only in part from his substantive policy positions, as much from his extreme vanity and sensitivity to perceived slights.” (Financial Times, Nov. 13.)

The world economic order has produced winners. The world economic order that America helped to bring to the world produced many successes when viewed in the long haul. A walk-through in the course of seven decades gives an image of many countries that have experienced good economic progress.

When the world was badly destroyed by war, the US conceived a massive program of aid known as the Marshall Plan which brought food and development to war-ravaged countries.

For three decades, the US led many countries through the market capitalist bloc as it struggled in competition with the communist model for world economic domination. Eventually, by the 1990s, there was a clear triumph of market capitalism as the communist, Soviet empire fell apart and more countries embraced market capitalism as their model for their economic growth.

This economic order was helped by the setting up of world institutions that assisted countries in payments difficulties and those in need of development finance. Thus were born the IMF and the World Bank, and later other regional development banks.

An initial failure to put up a world trading system led to the formation of regional trade agreements among countries with like-minded trade and economic objectives.

Under American support through the United Nations, multilateral trade negotiations brought down trade barriers among nations and finally led to the establishment of the World Trade Organization (WTO).

In parallel but under tolerant rules for regional trading agreements within the WTO, many regional trade agreements flourished. The most significant of these was the three nation NAFTA between Canada, Mexico and the US.

Many waves of countries have succeeded exceptionally well under this world economic order.

Focusing only in East Asia, the waves of countries that moved forward is an impressive list. The waves began with Japan, then Hong Kong, Singapore, South Korea and Taiwan, then Thailand, Malaysia, Indonesia and most impressive of all, China, and finally, Vietnam.

The Philippine case.  The Philippines should have been the first and most favored new nation in East Asia to grow under conditions of trade openness. It enjoyed better facilities than South Korea and Taiwan to become the first among the industrializers of Asia.

At the beginning of independence, the Philippines enjoyed a 28 year period of economic adjustment in trade with the United States, our colonial benefactor. This was in the form of a special tariff preferential treatment that applied against a total range of American imports.

But during the early days of independence, the country went in the wrong economic policy direction. Philippine leaders adopted protectionist measures —exchange controls and import controls — restrictions against foreign investments and let them stay long.

Some of these were part of the restrictive economic measures that are provided in the Philippine constitution, which to this day still exists. Following the new 1987 constitution, the restrictive provisions even expanded, thereby further shooting ourselves in the foot.

Thus, Philippine economic future has been hampered by an earlier failure to embrace the right economic opportunities when they were open to us.