Recession
FIRST PERSON - Alex Magno (The Philippine Star) - June 19, 2018 - 12:00am

At the rate he is going, Donald Trump could single-handedly push the global economy into recession.

Like a drunken cowboy firing at everything in sight, Trump has decreed tariffs all around. Now he is about to reap retaliation from friend and foe alike.

This week, India will impose tariffs on a range of US products in retaliation for Trump’s arbitrary tariffs on steel and aluminum products entering the American market. China, as early as next week, will impose tariffs on American exports entering her markets. Canada has indicated it will soon impose tariffs. The European Community will do the same.

It is Donald Trump against the world.

Very soon, the US economy, especially the “red states” supportive of Trump, will feel the pain. Some economists calculate that Donald Trump’s unprovoked trade war will cause the loss of 16 jobs for every one created by protectionist measures.

A general slowdown in the growth of the global economy will inhibit growth of the US economy as well. The low unemployment rates and respectable expansion Trump inherited from the Obama years will dissipate without the context of robust global growth.

Since a trade war harms all sides, the countries on the receiving end of Trump’s tariffs will suffer pain as well.

Last week, after Trump announced tariffs on $50 billion worth of Chinese exports, the markets took it as a signal that a trade war has commenced. Stock markets weakened across the board. By the time the bloodletting is done, trillions of dollars worth of market capital might have evaporated. Those dollars could have been productively used to create jobs and foster economic activity.

Under Trump, the US alone appears swimming the other way. While India, China and the rest of the dynamic Asia-Pacific region are negotiating free trade agreements, the US is closing down its economy. The US is assuming long-term damage because of Trump’s crude understanding of economics.

Tariffs impose unnecessary costs on the economic system. Those costs are ultimately borne by consumers. In the frenzy of tariff impositions he is engaged in, Trump does not understand he is harming his own consumers.

In his narrow view of things, Trump sees only the balance of trade numbers. But for economies, it is growth that matters. By killing trade, Trump kills growth.

By waging a trade war, Trump is playing to his political base. But that same base will bear the brunt of retaliatory measures undertaken by other countries. China’s retaliatory tariffs, for instance, target American agricultural exports such as soybean, pork and corn. These are products from the American heartland, the states that voted for Trump.

Trump’s economic strategy focuses on increasing American coal and natural gas exports. Over the past few years, China has been the fastest growing market for these energy exports. Should relations continue to deteriorate, the US will likely find itself with a lot of coal and gas it could not sell.

Although China enjoys a hefty trade surplus with the US, the world’s second largest economy is also a major source of investments in the US – not to mention being a major lender to finance America’s chronic budget deficit. Chinese investments in the US could fall into a trickle.

The looming trade war is taking a larger toll. Everywhere, growth projections are being adjusted downwards.

But Trump will likely push ahead with his protectionist measures. The rest of the world will simply have to discount American participation in the large project of growing the global economy to eradicate poverty.

Positioning

The Philippines is not directly involved in the trade war Trump has launched. But we will suffer from the strong dollar policy and the general weakening of global growth.

There are some ways for us to reposition and find opportunities in the changing trade configurations. We could, for instance, try to export more agricultural produce to China to replace American exports to that country.

On the whole, however, a general slowdown in global economic growth will cause us more harm than good. By expanding our access to the networks of free trade, we could contribute to keeping global growth going despite Trump’s damaging effects on the rest of the world.

A higher interest rate regime is unavoidable. The US will raise its interest rate and that sucks out hot money from our economy. We have no choice but raise interest rates ourselves to protect our currency and curb inflation. Higher interest rate will add more friction to our own economic expansion.

With America building walls around her economy, we can no longer look to the US market as a source of strength for our own economy. We have to look for new possibilities for closer economic engagement with large economies such as China and India. Doing so will help keep our own economic expansion going.

Fortunately, we have reinvigorated our relationship with China over the past two years. Imagine if we entered this period with our bilateral relationship with China as cool as it was during the Aquino years. We would have been left trying to grow with this major market effectively closed to us. With Trump’s protectionism, the US market will be barren for the emerging economies.

Australia and New Zealand are trying to keep alive the Trans-Pacific Partnership Trump abandoned when he became president.  We should try and be part of this.

The ASEAN is gaining ground in building a free trading regional common market. We must be at the forefront of this.

Free trade, not protectionism, will help sustain our economic growth.

DONALD TRUMP TARIFF TRADE WAR
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