Coping with Trump 2.0 trade war shock waves
If there’s one thing that the Philippines and other small trade players must have learned by now from the back-to-back tariff actions in the United States, it’s that the global chaos could be avoided through negotiations.
It was seen during the first Donald Trump administration. It may be recalled that China’s additional tariff on American sorghum in April 2018 was immediately reversed a month later after both sides had agreed to settle their row.
Before 2019 ended, the United States had withdrawn its plan to impose more tariff measures on Chinese goods to start “Phase 1” talks with the Asian economy.
Now that Trump is back in the Oval Office, countries like the Philippines must proactively promote and reshape “rules-based multilateral mechanisms,” Adrian Mendoza, assistant professor at the University of the Philippines (UP) School of Economics, writes in a new paper titled “Navigating turbulent waters: The Philippines’ global value chains experience amid trade wars.”
Such efforts, Mendoza stresses, are important because mere bystanders in the trade war, like the Philippines, are not immune to the effects of heightened protectionism. History has also shown that a multilateral approach to resolving trade disputes is a major recourse for smaller economies that can’t retaliate against the higher tariffs, he adds.
“This supports the view that trade wars in the age of globalized manufacturing can inflict serious damage not only on the parties directly involved but also on peripheral economies,” he says.
“This is an important reminder for the Philippines and the rest of small trade players in Asean (Association of Southeast Asian Nations) to heighten regional efforts to advocate reform in multilateral trade rules—one that is adaptive to the evolving GVC (global value chain)-dominated world trade order,” he adds.
Tariff orders
These words still ring true to this day amid the flurry of tariff orders under a second Trump presidency.
Early this month, Trump agreed to delay imposing 25-percent tariffs on Canada and Mexico after last-ditch negotiations with Canadian Prime Minister Justin Trudeau and Mexican President Claudia Sheinbaum.
Although the United States has already introduced tariffs of 10 percent on Chinese goods, a move that triggered a retaliation from Beijing, Trump is expected to talk to Chinese President Xi Jinping in the coming days, suggesting that a deal with China is still possible.
And familiar events like these just show the power of bilateral and multilateral negotiations, which might be extremely useful now as Trump threatens to impose reciprocal tariffs that can overturn decades of trade policy.
For Mendoza, it is in the region’s best interest to push for multilateral trading rules that “recognize trade in value added, production sharing and GVC spillovers as new realities in the current global environment.”
“Restoring the stability of the global trade policy is necessary to renew confidence in the world trading system and reduce the lingering costs of uncertainty created by the trade wars. A credible policy regime is important since it preserves a predictable trading environment on which current transactions and future investments are anchored,” he says.
“Strengthening further the intraregional trade and economic cooperation in Asean and East Asia is relevant more than ever. Given that economies in the region are interlinked by overlapping production networks and therefore exposed to common global shocks, there is a strong incentive to consolidate efforts and act collectively as a major stakeholder in global policy setting,” he adds.
Holistic strategy
Zooming in, Mendoza says the impact of tariffs on the Philippines is “less severe,” although the country is still bound to feel some pain considering its “strong dependence on imported intermediate inputs from the region.”
“Therefore, trade wars and supply chain disruptions in East and Southeast Asia will most likely be propagated in the Philippines via the web of intermediate trade linkages in the region,” he says.
However, he notes that the Philippines is not equally exposed to potential shocks, both positive and negative, from all countries in the region.
“In general, the country should adopt a more holistic industrial strategy aimed at building a stronger domestic production base, efficient networking of domestic and foreign suppliers and strategic linking of agriculture, manufacturing and services,” he continues.
