The Philippines amidst an economic war

In the last century, the world hoped that China would become more successfully integrated into the world economy. This meant that Chinese society would gradually open up and that private enterprise would gain ascendance over state ownership. After the end of the Mao Zedong regime and the economic reforms under Deng Xiaoping, this vision remained increasingly possible. However, with the ascension of Xi Jinping to power, all of these have suddenly changed. Beijing has become more authoritarian and reasserted more state control of Chinese society. It has also imposed more state control over private enterprise. It has, for example, drastically cut the influence of highly successful entrepreneurs like Jack Ma.

The American approach to entice Beijing to become an integral part of the global economy has obviously not worked. However, the reality is that China has asserted itself to become a major superpower in the world economy and the leading competitor of the United States. In this new era of intense competition with Beijing, for better or for worse, the Philippines has decided to align itself with the United States, Japan, Australia and their western allies.

The Philippines must learn how to deal with a China that has become more assertive. For example, China has openly expanded its claims in the South China Sea and even the West Philippine Sea. It has embarked on a massive modernization and expansion of its military.

We must accept the reality that China has become a leading power both economically and militarily. For example, during the term of former president Donald Trump, the US government threatened to impose sanctions against China. It also launched a trade war and placed tariffs on more than 80 percent of US imports. Trump also began a campaign against Huawei, the Chinese telecom company whose 5G networks threatened US information security.

President Joe Biden imposed new human rights sanctions on Beijing. In 2022, the US also enacted sweeping restrictions on the sale of advanced semiconductor equipment to China. Today, the US is planning to pass a law that will ban the use of TikTok in the US unless they give up their Chinese ownership.

However, all of these measures do not seem to have any effect on changing Chinese behavior. Beijing has not altered any of its policies and has, for example, increased its threats in the South China Sea and the Taiwan Strait.

Trade liberalization has given China immense influence over many US supply chains.  The United States is trying its best to reduce its dependence on China for many of its important imports. For example, the United States relies heavily on Chinese supply chains for widely used pharmaceutical and medical supplies. Another product that the United States is trying to reduce its dependence on is semiconductors and computer chips. In this move to reduce dependence on China, the biggest beneficiary so far has been Vietnam. This is one area that the Philippines should try and exploit.

In a recent meeting between President Marcos and US Commerce Secretary Gina Raimondo, she said that the US should try and assist the Philippines to double its production of semiconductors.This is an example of how the Philippines can benefit from America’s resolve to reduce its dependence on Chinese imports.

In a recent article in the very influential Foreign Affairs quarterly, “How to China-proof the Global Economy,” it carries several proposals on how to reduce US dependence on Chinese supply chains. This publication is seriously read in Washington DC circles and often leads to new American policies. Therefore, this is a possible predictor of US economic policies and should be seriously studied by Philippine policy makers.

For example, the author Peter Harrell writes: “A better approach to containing China and its influence in the world cannot be based on sectoral trade bills and export controls alone. To bring developing countries closer into alignment with the West, the United States also needs to find more ways to provide economic and infrastructure support to its partners. New forms of international financing will be especially important not only for driving the clean energy transition and promoting sustainable development, but also for offering countries a more attractive alternative to partnering with China.”

A 2023 UN report said that the world needs a $4-trillion financing gap to meet sustainable developing goals. Harrell again writes: “The reality is that if the United States and its allies do not meet these needs, China will… Washington can also provide more capital to partners and allies by expanding the use of sovereign loan guarantees.”  Sovereign loan guarantees are actually used by emerging economies to unlock additional financial resources.

It is critical for the Philippines to understand that the economic conflict between the superpowers is bound to be more intense. Our policy makers and leaders should strive very hard to ensure that our own economic policies are not just based on “bending with the wind” but more on exploiting the different strategies of the superpowers for the benefit of our own people.