Improv

The global markets are in shambles. We are looking at the greatest self-inflicted wealth destruction ever. No one knows how this will end.

The US stock market alone has shed trillions of dollars in value. Among the biggest losers are the billionaires who thought they could constitute an oligarchy under a Trump presidency.

Stock exchanges are, by far, the most efficient mechanisms for allocating capital and creating wealth. Many years of wealth creation have been demolished by the extreme uncertainty of the past week.

China, the world’s second largest economy, stood up to the “reciprocal” tariffs Trump imposed. That piqued the American president, who ordered additional tariffs imposed on Chinese exports to the US.

China now faces a 104 percent tariff wall. While other nations seem willing to negotiate with Trump, Beijing has set a firm tone. The Asian superpower is not playing the bully’s game.

Ironically, it is China that stands to gain the most in the long run. The country, ruled by the Communist Party, is bound to be the rallying point for all nations seeking free trade. If the global economic order is reconfigured, China emerges stronger.

China actually creates products – a lasting advantage that cannot be easily replicated. At the end of this episode, China will still be the manufacturing giant that it is. The rest of the world will still buy those products – although American consumers, thanks to Trump’s insane trade war, will pay substantially more than anyone else.

All the chaos Trump unleashed on the global trading system will harm Americans more than anybody else. It will break supply lines and value chains. If the market turbulence becomes more severe (which is likely with the escalation of the trade war), some of America’s vaunted corporations are bound to fold.

The sequence of bankruptcies will not begin from Wall Street emanating outwards. It will begin from the US heartland where, as one economist puts it, farmers are just one crop away from bankruptcy. Trump may not know it yet, but his wild and imperious policymaking will impoverish his own political base.

There is something eerie about the way analysts are trying to make sense of what Trump has unleashed and how some countries are clinging to the belief that the damage could be moderated by some negotiation with the tyrant at the White House.

The fact is, there is no sense in what Trump is doing. He tries to assure the rest of the world that he knows what the hell he is doing. But by now it is clear he is improvising as he goes along.

There is no strategy here. Only impulsiveness.

This whole episode begins when Trump deployed some highly dubious math to calculate tariff rates he unilaterally imposed on everybody else. By this funny calculus, he ends up punishing economies over which the US enjoyed trade surpluses and putting up tariff walls on small jurisdictions entirely populated by penguins.

Trump’s entire tariff exercise fails to understand that total trade includes goods and services. The US may be a poor competitor in manufactures. But it is a powerhouse exporter of services – especially software and content.

America’s economy has long ago become “post-industrial.” It is most efficient trading services. It is driven by consumption. It can no longer become a manufacturing economy. That is its most inefficient option.

Yet Trump seems to want to return the US to the 1890s. He conveniently revises history to gloss over the fact that the Great Depression was caused by trade wars. In turn, this episode led to World War II. Nothing good comes out of distorting historical facts.

When Trump announced his menu of “reciprocal” tariffs last week, some of our officials tried to downplay the impact of this insane move on our economy. One Cabinet secretary said that this assault on global trade could, in fact, advantage the Philippine economy because the tariffs imposed on us were lower than those imposed on our neighbors. The logic here is rather strange. It is like saying that we are better off because our neighbor was stabbed 30 times while we were stabbed only 17 times.

Another official said that we will only be minimally harmed because we are not an export dependent economy. That is not true. Our biggest sources of foreign exchange are the BPOs and OFW remittances. Both will suffer horribly in the face of a global financial crisis or a recession.

Our officials are likely trying to play down the domestic impact of Trump’s assault on global trade because we have not prepared for this eventuality. No package of mitigating measures have been prepared by our do-nothing government. No program to protect the most vulnerable sectors have been announced.

Contrast this with the way the Macapagal-Arroyo government responded to the outbreak of the 2008 Asian financial crisis. A package of “counter-cyclical” economic measures were announced to help us reflate our economy soonest.

All our other neighbors have been frantically preparing for the possibility Trump will overturn the global economy. Vietnam, for instance, cut down its own tariffs in what turned out to be a fruitless effort to get better treatment from the US. Nevertheless, a high-powered Vietnamese delegation is now in Washington to try and win concessions.

China, for its part, has been preparing years for this sort of global meltdown – which explains its defiance.