Last May 11, Pathways to Progress held a Roundtable Discussion on the issue of a looming US-China Trade War, at the Astoria Plaza in Pasig City. The event titled “Mapping the Implications of Sino-US Economic War on the Philippines and ASEAN” gathered economists, academics, and representatives from the relevant government agencies such as the National Economic and Development Authority (NEDA) and Department of Foreign Affairs (DFA).
Dr. Federico Macaranas, former Executive Director of the AIM Policy Center; Dr. Ronald Mendoza, Dean of the Ateneo School of Government; and Prof. Ellen Palanca formerly of the Ateneo School of Economics gave presentations.
Dr. Ronald Mendoza argued that the Philippines would be impacted by a Sino-US trade war given the interdependence of international production chains. He says that, for example, Chinese tariffs on Boeing would affect Philippine exports as the former incorporates certain Philippine electronic parts and inputs. He also cited a figure that 17 percent of the Philippines’ exports form part of China’s value chain. Dr. Mendoza furthers that in the event of a trade war, there is the possibility that companies may choose to relocate their manufacturing bases and operations to circumvent the imposition of tariffs, which may then be a strategic opportunity for the Philippines. But for the Philippines to be able to attract investments, the country needs to provide better incentives. Dr. Mendoza advises that for the Philippines to be able to achieve a more sustainable economy, the country needs to move up the value chain and provide higher quality jobs, taking into account potential risks posed by the implications of automation or the Fourth Industrial Revolution. With respect to broader Sino-US trade war consequences, Dr. Mendoza expressed concern on how the global rules on trade and investment may be impacted, which could affect how the Philippines acquires or absorbs technologies from foreign partners or investors.
Dr. Federico Macaranas believes that it is inevitable that the Philippines will be affected by the trade war given the interconnectivity of international production chains in which ASEAN has become China’s second largest trade partner. According to him, for the Philippines to ride out a possible Sino-US trade war, Manila would have to strengthen its trading relations with the ASEAN+3 nations and reconsider joining a Japan-led Trans-Pacific Partnership (TPP). He adds that the Philippines would also have to bolster its local economy by integrating rural firms with the national economy through infrastructural connectivity projects, promotion of domestic tourism, and better access to loans in order to improve human capital skills and enable broader market shares for rural communities. Dr. Macaranas notes that the most vulnerable Philippine business sector in the event of a Sino-US trade war would be the shipbuilding industry as China sells more steel to ASEAN than it does to the US. Specifically, the Philippines’ key suppliers of steel are China, Korea, and Japan. Dr. Macaranas also cautioned that remittances from Overseas Filipino Workers (OFWs) might also be affected if the economies of the countries hosting OFWs slow down.
Dr. Ellen Palanca pointed out that if a Sino-US trade war ensues, China would be able to find new opportunities just as it did in weathering the 2008 global financial crisis. According to her, during the financial crisis China diversified its markets and accelerated industrial reforms to be able to move up the value chain. She argued that if a Sino-US war breaks out, China would attach greater priority to the Belt and Road Initiative (BRI) and put more importance to developing Chinese domestic consumption. In relation to this, Dr. Palanca contended that with or without a trade war, there will continue to be economic opportunities for the Philippines in terms of Chinese investments inflow. She cited the example of Fiberhome, a Chinese fiber-optic cable company, which supplies Philippine telecom industries with the latest fiber technology at a low cost. Another example that she cited is Huawei, which recognized the Philippines’ lack of engineers, prompting the Chinese company to establish a school for training Philippine engineers.
Dr. Jed Rabena, convener of APPFI’s Regional Integration and Connectivity (RIC) Program, was the facilitator of the discussions. The RIC Program was recently launched in order to promote a critical understanding of the political economy of regional development, and of economic trends and issues that affect Philippine national and regional interests.