Anti-trade

Last week, Donald Trump surprised the world by announcing his intention to impose tariffs on imported steel and aluminum. The markets, as they usually do when perturbed by news, responded by falling.

The stock markets, barely recovering from the sharp drops last month, went into another roller-coaster ride. Trump’s announcement, and the response of America’s major trade partners, seemed to indicate the onset of trade wars no economy ever wins.

The proposed tariffs on steel and aluminum will hurt America’s key allies: Canada, Mexico and the European Union. The Europeans, the most outspoken among the likely victims, announced they were preparing to retaliate instantaneously.

If a trade war does break out, consumers on all sides will be the first losers. They will pay more for the products they need. Many jobs will be lost. Economic growth will be curtailed.

This week, another key official of the Trump administration resigned his post in reaction to Trump’s tariff announcement. Gary Cohn, Trump’s chief economic adviser, joins a rather illustrious list of personalities resigning from the White House staff.

Cohn, formerly an executive at investment banking powerhouse Goldman Sachs, was the man responsible for crafting the tax reform bill. The bill is the only piece of Trump legislation to pass the US Congress.

It is easy to see why he might so vehemently disagree with the proposed tariffs. They will impair free trade and prevent economies from becoming more efficient. The proposed tariffs run against the core beliefs of economists and investment bankers.

Trump, as usual, plays down the significance of Cohn’s resignation. He says there is a long line of qualified people waiting to fill the job. When he talks like that, it must be the opposite of the truth. The drift of Trump’s populist policies outrages the true professionals in the business.

The only viable replacement for Cohn on the horizon is Larry Kudlow, described as a longtime informal adviser to Trump. The problem here is Kudlow has also recently spoken out against the proposed tariffs.

There is very little evidence Trump fully grasps how economies work. He makes economic policy decisions on political impulse and mainly to satisfy expectations from his base of supporters who come mainly from the most backward sections of the American economy.

For instance, Trump withdrew from the Paris climate change accords to free his hand in dismantling environmental regulations, especially those that restrict the use of coal. The coal miners are among the poorest (and whitest) workers in the US. In taking that unfortunate decision regarding the Paris accord, Trump overlooks the fact that there are so much more jobs being created in the rising alternative energy sector that whatever few jobs might be saved in coal mining.

By imposing tariffs on steel and aluminum imports, Trump is trying to save jobs in inefficient American industries producing these products. The tariffs will not only conserve the inefficiency of American steel and aluminum industries, they will penalize consumers across the board with higher prices for the products. 

Many years ago, American autoworkers in the Detroit area protested imports of Japanese cars by bashing them on sight. They blamed the imported cars for taking away their jobs.

As a response, Japanese automakers moved manufacturing facilities to the US, although in the more efficient states. The Rust Belt continued rusting. Jobs continued to be shed. American automakers could only compete by automating their production lines to match the efficiency of Japanese production lines. Obsolete jobs were never recovered.

Trump should at least learn from this experience even if he might be allergic to reading economic treatises. Failing in that, he threatens to make the US economy a dying relic of a 20th century chronically incapable to meeting the demands of the 21st century.

Best

A recent survey of investors globally produced a list of the best countries to invest in. The Philippines placed first in that list.

The result should make us proud. We have invested years trying to get our economy right by working down our debt load, liberalizing our policies and deepening our financial markets. Our banking system is strong and our credit rating benefited from a series of upgrades. The recent tax reform measures enacted into law help us consolidate the reforms by ensuring fiscal stability.

Seventeen years of sustained quarter-on-quarter growth provides us a strong platform from which to lift growth to a new level. The Build, Build, Build program which seeks to close the infrastructure gap that stymies our economy is a key step to ensure progress is sustained deep into the future.

The high growth rate posted by the Philippine economy led many analysts to proclaim us “Asia’s Miracle Economy.” Some years back, we were written off as “The Sick Man of Asia.” 

Today’s positive economic condition is not the work of a single administration. It is the result of the consistent triumph of economic rationality over populist superstition in the crafting of our policies.

Recall that every policy reform since 1986 was a hotly contested political issue. The reforms include: liberalization of our telecoms sector, full privatization of the oil industry, revenue reliability through value-added taxation and enhanced fiscal discipline.

All these reforms were challenged with street protests from the usual array of backward-looking economic nationalists and subsidy-hungry populists. If these groups won at every turn, our economy would more closely resemble Cuba’s or Venezuela’s than the dragon economies of our part of the world.

Our attractiveness as an investment destination is dictated by our demographic advantages. We have among the youngest workforces in the world.