Trade war: What to learn from it

There is an old article from the New York Times that chronicled US President Donald Trump’s love for tariffs. That it all started in the late 80s. It started in 1988 when he lost in an auction for a 58-key piano used in the classic film “Casablanca” to a Japanese trading company for a collector. To him, it was a personal and stark reminder of Japan’s growing economic strength. Consequently, in the ensuing year, he went on television “to call for a 15% to 20% tax on imports from Japan.”

Apart from Japan, he was also then critical on West Germany, South Korea and Saudi Arabia for their trade practices. That the USA was ripped off and, in his words then, “We’re a debtor nation, and we have to tax, we have to tariff, we have to protect this country.”

Fast forward in 2016, he was elected as president of the USA. By this time, he was no longer critical on Japan, West Germany (now a united Germany), South Korea and Saudi Arabia.  A new nemesis though has risen, China.

Actually, the ascension of China to become USA’s biggest threat started in the 1970s when it started its economic reforms. From then on, its volume of trade in goods with the USA grew rapidly towards the end of the decade. In an article in the South China Morning Post (a Hong Kong-based English-language newspaper owned by Alibaba Group), the growth of trade accelerated after China's entry into the World Trade Organization (WTO) in 2001. Thanks to US businessmen who established factories in China, the “USA has consistently imported more from China than it has exported, thus, resulting to a trade deficit in goods rising to US$375.6 billion in 2017.” 

As the trade deficit rose by the day, on July 6, 2018, Pres. Trump imposed 25% duties on around US$34 billion of imports from China, including cars, hard disks and aircraft parts.  Unperturbed, China retaliated by imposing a 25% tariff on 545 goods originating from the US worth US$34 billion, including agricultural products, automobiles and aquatic products.  Several impositions and retaliations followed during the year. Then on December 1, 2018, both Xi Jinping and Donald Trump agreed to a ceasefire at the G20 summit in Argentina.  Suspensions on imposed tariffs by both camps ensued. 

The ceasefire wasn’t meant to even last for half a year, as negotiations broke down on May 10, 2019.  Thus, reimpositions and retaliations followed.  Then, on June 19, 2019, Xi Jinping and Donald Trump agreed to a trade war truce at the G20 summit in Japan, thus, delaying the imposition of new US tariffs.  Lowering and suspension of tariffs ensued.  And even during Pres. Biden’s term, the same tariffs where in effect. 

Now that Pres. Trump is back in the oval office, his love for tariff is even more pronounced. He is no longer fixated on China. Even his country’s closest neighbors and allies (Canada and Mexico) aren’t spared. Supposedly, the only underlying reason for this is the fact that USA’s domestic production is less than its consumption. It simply means that its imports exceed its exports resulting to a burgeoning trade deficit. That by imposing tariffs, both US (instead of operating factories abroad) and foreign businessmen will opt to establish their factories in the USA (to avoid tariffs). 

Frankly, we are similarly situated.  We import more than we export. As of November 30, 2024, our trade deficit stood at US$49.96 billion.  While energy (oil and gas) imports are dominant and we can’t do anything about it, we must be reminded that we also import basic items like rice, meat, milk and fish. So basic and can be produced in the country.  

Notably too, just like the USA (known spenders), our economy is also around 70% consumption driven. It simply means that unlike other countries that heavily rely on exports, our economy is largely driven by household spending. Well, this is not surprising. The dollar remittances of our modern heroes (the OFWs) and those generated by the business process outsourcing activities made this possible.

Obviously, therefore, if our dollar earners will learn how to set aside a portion of their income for small businesses like piggeries, poultries, rice farming, cattle raising, fish farming, etc., not only that we can generate labor, we can also minimize a bit our reliance on imports.  Consequently, not only shall we be able to reduce our trade deficit, we shall also be able to pave the way to food security.