Rising US, China protectionism: Philippines still on losing end

November 14, 2017

by IBON Foundation

By Audrey De Jesus

Free trade agreements (FTAs) are a major agenda item for countries attending the 31st Association of Southeast Asian Nations (ASEAN) Summit. whether at the meeting proper or the sidelines. Contrary to the projection that FTAs promote partnerships for development, however, these FTAs are becoming more and more one-sided.

As the world financial crisis persists, developed countries like the United States and China are taking increasingly protectionist stances to further the interests of their big local firms and economies. At the same time, they are also aggressively pursuing the further liberalization of less developed countries like the Philippines through multi- or bilateral trade deals that open up their economies and resources to even more corporate plunder.

Increasing protectionism

There has been a trend of increasing protectionism particularly among the world’s largest economies. Though not new, the rise in protectionism further indicates that globalization is not working.  The FTAs forged have not really been about “leveling the playing field” and helping smaller economies develop, but making it easier for big corporations, mainly from developed countries, to do business and reap profits.

Such protectionism refers to economic policy where governments employ various methods such as import tariffs and quotas and state subsidies to restrict trade between countries, usually to protect or fortify a country’s domestic industries from foreign competitors.

Still struggling to recover from the 2008 financial crisis, industrialized countries are resorting even more to protectionist policies to the detriment of less developed countries like the Philippines.

Data from Global Trade Alert (GTA)’s website shows that since the 2008 global financial crisis, the number of new protectionist measures implemented by all countries per year has risen from 295 in 2009 to 585 in 2017, an increase of 89.3 percent. This is the second highest since 2015 with 612 new protectionist measures.  New liberalizing measures implemented had a faster growth rate at 97.2% from 2009 to 2016. But these measures are still comparatively less year-on-year than new protectionist measures implemented. Liberalizing measures numbered only 248 in 2015, and 215 in 2016.

According to the 21st GTA Report, members of the Group of 20 (G20), which is made up of the world’s largest and emerging economies, are resorting more and more to protectionist measures. Meanwhile, the Group of 7 (G7) countries plus Australia, accounted for an increasing share of the group’s protectionism. These largest industrialized country members of the G20 accounted for 39.2% of protectionist measures in 2015, which grew to 46.9% of in 2016, and 54.9% in 2017.

Of the G20 members, the United States government has implemented the most protectionist measures at almost 1,250 policy instruments since November 2008. The US was followed by India, Russia, Argentina and Germany.  The United Kingdom, Japan and China came in seventh, eleventh and twelfth among the G20 resorting to protectionist measures.

US’s blatant protectionism

Bannering the slogans “America First” and “Make America Great Again”, US Pres. Donald Trump has made his protectionist stance loud and clear. His administration has already taken several steps to address what it calls “unfair trade deals” allegedly behind the US’s mounting trade deficit and American job losses.

Trump has already withdrawn or threatened to withdraw from regional or multilateral trade agreements. One of the first things Trump did as president was to withdraw from the Trans-Pacific Partnership. More recently, Trump also threatened to walk away from the North American Free Trade Agreement (NAFTA) the US has with Mexico and Canada if more favorable trade terms for the US are not reached. Among the controversial US proposals is a sunset clause if NAFTA is not renegotiated every five years, the removal of a dispute resolution mechanism, and including in the rules origin at least 50% US content of automobiles to avail of zero tariffs.

Wary of multilateral trade agreements, Trump is now prioritizing bilateral talks to gain better trade deals for the US. For instance, South Korea agreed to enter renegotiations of the Korean-US (KORUS) trade deal next year, as well as pledged to buy billions of dollars-worth of US arms during Trump’s visit to the country. Of course, South Korea may have been pressured to enter renegotiations for fear that Trump would make good on threats to rescind their trade deal.

Trump is also cracking down on countries it feels are committing trade violations to the detriment of US interests. The US Commerce Department recently imposed a more than 200% tariff on the CSeries jet of Canadian aircraft maker Bombardier. This was after Boeing filed a case against Bombardier for receiving unfair subsidies from the Canadian government that allowed them to sell their jets at low prices. Last August, Trump also signed an executive memorandum ordering the investigation of China for unfairly acquiring US technology and intellectual property in violation of trade regulations. If proven, the US will pursue penalties against China. To enforce such measures, Trump has appointed a trade team of known for their strong protectionist leanings, particularly against China.

The GTA further confirmed in its June 2017 report that US trade policy has become more protectionist and less liberalizing compared to the previous year.

China’s covert protectionism

At the World Economic Forum in January earlier this year, China’s President Xi Jinping pronounced China as a “champion of globalization”. In other words, it would fill the vacuum the US left after it withdrew from the TPP and lead in advancing the neoliberal agenda globally. China has also been a critic of the US’s increasingly protectionist measures. However, despite such proclamations, recent China policies reveal that it too is taking a more protectionist stance.

A prime example of this is “Made in China 2025”.  According to a US Chamber of Commerce report, “Made in China 2025”, released in 2015, is the China government’s blueprint to strengthen and build its domestic industries, and make it a global manufacturing leader. It is also in accordance with China’s 13th Five-Year Plan, among other state-led development plans.

Under “Made in China 2025”, ten strategic industries are targeted: agricultural machinery and equipment; aerospace and aviation equipment; energy-saving and new energy vehicles; next generation information technology; high-end numerical control machinery and robotics; maritime engineering equipment and high-tech maritime vessel manufacturing; advanced rail equipment; electrical equipment; new materials; and biomedicine and high-performance medical devices.

The plan aims to build or strengthen these local industries so that foreign technology and products can be replaced with domestic ones. To do so, it is employing what the US and European Union have criticized as trade-distorting protectionist policies and methods. These include, among others, preferential support like subsidies and capital to local corporations, buy-local requirements, requiring technology transfers from foreign firms to do business in China, and state-led or state-directed investment in foreign firms abroad.

GTA data indicates that protectionist measures enacted by the China government in the past five years grew by 45.9% from 181 protectionist policy instruments to 264 in 2017.

On the losing end

In contrast, less developed countries like the Philippines have had to follow neoliberal dictates and open-up their economies under one-sided trade deals. The Philippine government, for instance, has long complied with globalization mandates including “integration” under ASEAN. But this has only stunted the country’s economic development, and worsened poverty and joblessness.

For instance, trade liberalization has reduced tariffs to lowest levels and worsened Philippine trade deficits, significantly in food and agriculture. The country has among the lowest agricultural tariffs in Asia at 0-7% in food and agricultural products, except for rice, this year. Meanwhile, the share of agriculture and manufacturing in gross domestic product (GDP) have shrunk to 18% and 9%, respectively, as of 2016. Over 11 million Filipinos are either jobless or underemployed. Real wages are falling. Extreme poverty grips a fifth of the population.

In this climate of rising protectionism amongst the world’s industrialized economies, countries like the Philippines can only expect even more one-sided FTAs, whether regional, multilateral or bilateral. As the past four decades of globalization have proven, the Philippines has been on the losing end and stands to lose even more if it stays the course of neoliberal framework.

However, the Duterte administration appears to not only be staying the course, but trying to fast track it through the enactment of even worse neoliberal policies that cater to big foreign corporate interests. On his to do list is his regressive Comprehensive Tax Reform Package, Build Build Build infrastructure program, the Public Utilities Act, and the lifting of foreign restrictions through Charter change, to name a few.

The government should not be seeking help from global powers who are responsible for the world’s globalization woes in the first place, and are pursuing the same old failed market-driven policies. Instead it should take decisive steps to protect the Philippine economy and the Filipino people’s welfare towards the genuine development of domestic industries. ###