MANILA, Philippines — The Philippines can take advantage of a possible trade war between China and the US as it is in a good position to explore wider trade options with China, an official of the Asian Development Bank (ADB) said.
The country can be competitive in products such as pork, as China recently decided to slap US pork exports with 25 percent tariff in response to higher duties on Chinese steel and aluminum, said Stephen Groff, ADB vice president for operations in East Asia, Southeast Asia and the Pacific.
“If such trade restrictions are put in place, what the Philippines should think about is: would it provide opportunities for increased trade between China and the Philippines? So for example, if there is a 25 percent tariff put on imports of pork products from the US, and the Philippines is a big pork producer, would it provide opportunities? Does that make the Philippines more competitive in the Chinese market for pork exports? So you need to think creatively about what opportunities could emerge,” he said.
“We discourage trade restrictions, we discourage trade wars but individual countries should be thinking about what opportunities might arise as a result of those trade restrictions,” he added.
Taking advantage of this window of opportunity will also encourage Philippine companies to invest more in productivity to attain economies of scale and capture export opportunities in China, Groff said.
He noted that companies may have been discouraged from modernizing their production lines because they do not see new opportunities.
“It may also encourage companies to make more investments in increasing productivity or more mechanization or modernization where they were discouraged from doing before just because they were not competitive in the global market. Now they may be more competitive both in terms of processing and sanitary and phytosanitary procedures. So all of a sudden if there is an opportunity it may be more worth it to make those investments,” said Groff.
ADB said a trade war between the two superpowers will be detrimental to economic progress in the Asian Pacific region which has been thriving on trade liberalization for more than 25 years to become one of the most dynamic regions in the world.
“I think that at first, it is important to acknowledge that most of these trade measures discussed by China and the US are not yet in place. And we always hope that through the discussions and negotiations that have happened that ultimately these measure won’t be put in place. The economic success of Asia and the Pacific over the last quarter century has been very much dependent on free trade. The region has benefitted dramatically on free trade so we certainly discourage any movement towards protectionism closing down trade,” Groff said.
A full blown trade war between US and China, he said, is expected to gradually creep into the region where many developing countries are tightly integrated in Chinese value chains.
The effect, however, will not be immediate but will have a definite impact on growth across developing Asia.
“Now, were all of these measures put in place, we don’t think there will be an immediate negative impact on growth. There may be some impact on growth but it will not necessarily be a dramatic impact. If these measures were kept in place for the medium to long-term, that could certainly depress growth for a certain amount. We did some research a number of years ago. If you see a one percent drop in the growth rate of China, that translates to a 0.3 percent decrease across Developing Asia,” he said.
As the Philippines is not as centrally integrated in Chinese value chains, the effect may be less but Groff said the government should still pay close attention to developments.
“Since the Philippines is not as centrally integrated in value chains as some of the countries in the region are, that transmission might decrease but there are also some exports from the Philippines to China that are somehow part of a value chain or processing. So the Philippines will not be totally immune to challenges in that regard or the degree. But maybe not as much as the neighboring countries. Again, I am not overly concerned at the moment but we do think we are paying close attention,” he said.