Crossroads (Toward Philippine economic and social progress)
Philippine Star, 12 April 2017


The world monitored with some anxiety the visit and first meeting of the leaders of the US and China at Mar-a-Lago, the Florida resort where President Trump welcomed President Xi Jinping.

When it ended, the nervousness had lifted and prospectively friendly future economic relations appear to be in the cards.

Moreover, it enabled the two powers to exchange ideas on how to contain the nuclear threat posed by North Korea on the security of the East Asian region.

We can gauge the future from the closing commentaries of both Trump and Xi. Trump said it first: “We have made tremendous progress in our relationship… The relationship developed by President Xi and myself I think is outstanding. And I believe lots of potentially bad problems will be going away.”

China’s President Xi said in reply: “We have engaged in deeper understanding, and have built a trust. I believe we will keep developing in a stable way to form friendly relations… For the peace and stability of the world, we will also fulfill our historic responsibility.”

To this, Trump replied, “I agree with you 100 percent.” From a close view of the proceedings, US Secretary of State Rex Tillerson observed that “the discussions had been very frank and candid.” He added that both leaders agreed to expand areas of cooperation and manage existing differences based on mutual respect.

Signs that Trump’s China rhetoric is cooling down. Trump’s populist electoral victory was in part due to the way he spoke against China’s trade and industrial success which he said was at the expense of American workers.

During the election campaign, Trump referred to China as having raped America’s industrial jobs with its trade practices and as a currency manipulator. He had threatened to impose high tariffs on imports of Chinese goods to protect US jobs.

In making these statements, Trump was apparently recklessly ready to override the multilateral rules of international trade that the US had carefully nurtured over the decades.

Many observers had thought that the US under Trump would abandon multilateral principles and practices and lead the world toward chaos, trade war, and the resurgence of nationalistic, do-it-yourself rules of behavior.

In the first two months of the Trump presidency, as he struggled on issues that earlier consumed him (which were both big failures – the immigration ban on Muslims and the Obamacare repeal-and-replace move), Trump was unusually quiet on the trade and economic issues with China.

Failure and cooler minds might have been in play in toning down Trump’s mercurial rhetoric toward China and trade issues. The failures might also lead to new strategies within the Trump government.

Moreover, traditionally, a disconnect exists between electoral campaign rhetoric and the realities of governing. Criticizing policies that outsiders talk about is always easier than governing. As reality sets in, caution with adjustment becomes essential and critical to success.

All the better that this is becoming the order of things for all the world, as it avoids the volatile and dangerous path of trade wars and unpleasant quarrels.

Dealing more softly on trade issues. How different would the conflict resolution mechanism be from the past setup, for instance, the Obama years?

Probably not much more different. The traditional channels for advancing on economic issues, including those on trade and investments would always essentially fall on bilateral dialogues first. These would be assisted by extension in all the other institutional channels – which are mainly multilateral – where the same issues are often addressed.

To what extent some of the thorny economic concerns could be resolved would depend more on mutual understanding and a willingness to undertake negotiations without confrontations. This would mean cutting “deals” that would be mutually acceptable.

The Chinese apparently had come well-prepared. An outcome of the meeting is to set up a mechanism for upgrading discussions of difficult issues. To this end, both Trump and Xi have agreed to install a dialogue apparatus that puts both leaders in the head.

If past history is to be the basis, this could provide structure for dealing with bilateral issues. But would this mean a drift toward bilateral, rather than, multilateral approach to problems?

It would be difficult to predict how this would evolve. The airing of problems might take a bilateral channel, but the solutions would evolve on a multilateral path.

That is a path that involves other countries and institutions, a desirable outcome. It is certainly better than confrontations and threats.

Why a stable US-China economic relationship matters to the world. In the last four decades, the economic growth of China changed China, and to some extent, the world and the United States. It has also changed smaller countries like the Philippines in ways we do not easily appreciate. Trade and investments with China have increased in volume and in composition.

Before the election of Trump in the United States, the volume of trade and capital flows as a result of the globalization in trade, investments and labor migrations (however constrained by special rules) have already risen to massive levels.

The volume of two-way trade between China and the US is the largest bilateral trade relationship of any two countries. China and EU (the other large industrial trading bloc) trade is almost of the same scale.

Add the trade of the countries in East Asia with China – Japan, ASEAN, and South Korea (including Taiwan) and the total trade accounts for around half of world trade.

The fact is, China, Japan, ASEAN and East Asia are part of the big supply chain of industrial production (for instance, the digital electronics industry) that supports trade. A large part of this production was destined for the US market in the form of imports.

Therefore, should China and the US be brought to a trade war of retributions and high tariffs, the world economy could go into a tailspin. Those economies caught up in the interdependence would be affected adversely.

This would engulf the Philippines badly, even if the Philippines today is less integrated with China and the US than such ASEAN neighbors as Thailand, Malaysia, Indonesia and Vietnam, to mention only some of the bigger partners with much larger volumes of trade with China compared to us.