ANAHEIM, California – One of the biggest fears for this new year is a trade war in the works as the Trump administration takes office. Based on the strong campaign rhetoric of Donald Trump, one of his first acts from the White House will likely be to go after China for perceived unfair trade practices.

Among others, Trump accused China of gaming the yuan’s exchange rate and heavily subsidizing Chinese companies exporting goods to the US.

Trump has threatened to impose a punitive tariff of 45 percent on all imports from China.

Only the most rabidly devoted Trump followers really believe Trump’s assertion that going after China with hammer and tongs will bring back lost manufacturing jobs. Trump obviously can’t unmake three decades of moving such jobs not just to China, but also to other low wage emer-ging market countries like ours. Besides, as many economists point out, the US lost more jobs because of new technology than due to migration to China.

Indeed, once Trump declares a trade war against China, we and other emerging market economies are going to be collateral damage. A commentary on Fortune notes that 35 percent of China’s $483 billion exports to the US in 1985 are “processing trade.”

This means, China imports components from other countries and then assembles them for export to the US and elsewhere. Our semiconductor industry, a mainstay of our export sector, will be seriously affected by a Trump trade war against China.

Even the United States will be affected by the trade war. American consumers have benefited through the years from lower priced products manufactured in China. Walmart and Apple are two large American companies that will have problems once the trade war happens.

A trade war could raise inflation and dampen domestic consumption in the US… certainly not good for the average American. A weak consumer demand is not good for the American economy overall. And once the US economy catches a cold, we are likely to suffer pneumonia.

Rep. Joey Salceda, an economist, thinks we are the second most vulnerable in the region once the US adopts protectionist policies. Joey feels the biggest threats to the Philippines are those that impact on our robust BPO business with the US, remittances from the US (mainly due to economic slowdown and deportation) and exports.

Rep. Joey points out the Philippine economy is the second most vulnerable after Singapore. Joey is not too worried about exports to the US, mostly electronics with low value added of 20 percent compared to BPOs and constructively, remittances. Joey also notes the Philippines only has a $1.5 billion trade surplus over the US aided by GSP preferences.

The BPO sector is different. The US accounts for 77 percent of the $22 billion BPO sector (both as market and investor) which generated 1.1 million jobs in 2015. Trump wants to bring back some of these jobs through a tax on outsourcing or simply by persuading the companies.

But Joey is confident our competitive advantages will be strong: neutral accent English, competitive and trainable manpower, socio-cultural predisposition to Western lifestyles and the hourly wage (around $2.00 per hour for a call center agent in the Philippines compared to over $10 in the US.

Remittances from the US amounted to $8.4 billion in 2015. But this includes remittances from other countries coursed through American banks. Remittances may be affected by a slowdown in the US economy arising from the trade war and other factors.

Hopefully, the seemingly good vibes between Trump and President Duterte can help mitigate some problems. Personal diplomacy can help convince Trump to take it easy on outsourcing to the Philippines by way of no taxation and no pressure on companies outsourcing to us.

Perhaps, Trump could also be persuaded by Duterte not to do any mass deportation of the close to half a million undocumented Filipinos as this will entail social costs for us. A pathway to legalize the stay of those with no criminal record or with the proper credentials to contribute to the US economy could be negotiated.

On trade, good relations between Duterte and Trump could perhaps lead to trade deals that would encourage American manufacturers in China to move to the Philippines. But Duterte’s off the cuff way of forming Philippine foreign policy, specially with the US, would have to stop.

With the peso’s exchange rate against the US dollar now in the low 50s, the country can ill afford being a collateral victim of Trump’s much anticipated trade war with China. Hopefully, President Duterte isn’t too busy with his war on drugs to give this matter his most serious attention.

Source: www.philstar.com/business