Category: america

Trump’s tariff threats

Donald Trump seems set on shaking up the global economic order (such as it is) with boundary-pushing trade policies, as in, the dreaded increase in import duties for certain countries. How might it affect us in the Philippines? Here’s a look-ahead post on what it means in the short and the long run, by econ professor Orlando Roncesvalles (@dumaletter.bsky.social) of Siliman U.

Letter from Dumaguete
December 19, 2024

TARIFFS GALORE
What happens next?

Tariffs and international trade are again in the news. 2025 will begin with a new administration in the United States that has promised its constituents a significant increase in import duties or tariffs. The proposed new tariffs are aimed at Canada, Mexico, and China. Tariff increases are also proposed for other countries that have declared a desire to undermine the role of the US dollar in the world economy.

The impact of tariffs

What do these tariff proposals mean in the short and long run? The long run is a helpful reference point, even if it takes too long. I say this despite a famous admonition by a very important economist (Keynes) that the long run won’t matter because we would be dead by then. It still pays to imagine that there is rhyme and reason, even in economics, when everything we might worry about will have done their ‘entropy’ thing and settled into a steady-state or stable equilibrium.

Let us imagine then the long-run effects of a large country such as the US enacting a substantial hike in import tariffs on its significant trading partners. Canada and Mexico have prospered after entering into free trade agreements with the US in 1974. Many observers view China’s phenomenal economic growth as partly due to its rapid exports since at least the 1990s and more so after China joined the World Trade Organization in 2001. The trade relationships of these three countries with the US give evidence of the benefits of international trade, even if governments attempt to ‘bend’ the rules to their advantage. Such rules cover trade tariffs.

A tariff is a tax. It is levied when goods cross national borders. Since 1945, the international community has negotiated tariff reductions or set up ‘free trade’ zero-tariff areas. This historical move toward liberalization is generally regarded as a good thing because we know that the historical alternative — trade restrictions and trade wars (when countries imposed tariffs and trade embargoes on each other during the interwar period of the 1920s to the 1940s) — was a nightmare. Noteworthy is an observation made in 1933 by an American historian (W. Y. Elliott) who saw in the emergent trade blocs and embargoes “the worst dose of economic nationalism that [the world] has ever seen. Worst because it will be deliberate; because the tools are at hand to make it more absolute than ever before; and because the conditions are present that will probably make the resulting dislocation of existing national economics more painful than ever before.” Sober minds already sensed the deep divisions between countries that resulted in World War II.

A tariff drives a ‘wedge’ between the world market price and the corresponding domestic price. For example, the US presently imposes an import duty of 25 percent on trucks imported from Japan. That means that the $20,000 price of a Japanese-made truck can rise to $25,000 in the US domestic market. The tariff ‘protects’ the American manufacturer from Japanese competition. Of course, such protection can go only so far. The demand for Japanese trucks in the US market also reflects their higher quality. Still, the tariff serves to shift demand toward US-made products.

But is a tariff inherently wrong? Ever since the time of David Ricardo, economists have recognized the desirability of free trade. Tariffs distort the natural incentives for countries to specialize in producing goods in which they have a comparative advantage. The accepted exception to this general rule is when tariffs promote overriding considerations such as national security, the promotion of ‘infant’ industries, or the mitigation of domestic ‘market failures.’ An example of a market failure is when there are large pockets of unemployment that result from free trade.

An interesting aspect of the theory on tariffs is that the size of the tariff-imposing country matters. If large, such a US TARIFFS 3 country can reduce world market prices when its increased domestic production of importables adds to global supply.

It follows from the discussion above that a large country can ‘force’ a fall in the world market price of a good. While this seems to be an argument for imposing tariffs, it carries the risk that similarly large countries would be tempted to impose retaliatory tariffs. The possibility of a resulting downward spiral of world market prices would, however, deter large countries from engaging in such a trade war.

A not-so-funny thing is that tariffs imposed by large countries may benefit small countries that would benefit from a lower price for imported goods. This ‘third-country’ effect may or may not be significant. It depends on how large the tariff increase is and whether the small country benefits from a free global market.

Other economists have come to similar conclusions. For example, a multi-country model employed at the Peterson Institute for International Economics (PIIE) suggests that Asian countries, including the Philippines, will likely benefit from new US tariffs.

The short-run scenarios

The short-run effects of significant tariff increases are difficult to divine.

Initially, US consumers will see price increases for imported goods, representing a one-time blip in inflation in 2025. But, unless tariffs continue to rise in later years, the effect on inflation should be transitory. (And yet, inflation can have a mind of its own. Central banks regard this in part as an insoluble problem of expectations. Inflation persists because the public expects it.)

There will be winners and losers from a new tariff. Domestic producers of goods that compete with imports will gain. Consumers of imported goods will suffer. In an ideal world, society could mitigate these gains and losses. A reduction in their income taxes would compensate the consumers of imported goods. The government could tax the profits of domestic producers.

In my view, such ‘rebalancing’ mechanisms are not likely to work smoothly. Consumers’ confidence will likely be shaken even if their income tax burden is reduced. Because consumption is a large part of aggregate demand, there would be a palpable risk of stagnation or recession following an initial period of stagflation. Indeed, the multi-country model used by the PIIE predicts declines in the trading volumes and national incomes of two countries that impose tariffs on each other.

The effect on the Philippine economy 

As noted earlier, Asian countries such as the Philippines stand to gain if they are exempted from the increased US tariffs. This could lead to a surge in demand for goods manufactured in the Philippines, potentially boosting the local economy.

Will the overseas Filipino workers also benefit? Their families in the Philippines can benefit from lower world market prices for Chinese goods.

Summing up and conclusions

The inflationary effects of new tariffs are negligible, especially in the long run, and the size of the US economy suggests that there would be a one-time fall in world trade prices.

A tariff is a tax, a part of ‘fiscal policy.’ What governments take, they can give back. The gains made by domestic producers can be transferred back to consumers through cuts in income taxes. Absent such redistribution mechanisms, a tariff amounts to a tightening of fiscal policy.

There can be severe consequences for the overall economy. A tariff increase can induce stagflation in the short run, depending on how central banks behave and how the public forms its price expectations.

We will likely get trade wars, which, as in the 1930s, will reduce the volume of international trade and usher in a global recession or even depression. A ‘silver lining’ to this grim scenario is that the bubbles in the stock markets and cryptocurrencies are more likely to burst amidst global deflation, which would be the more likely outcome after 2025.

One can almost wonder if tariffs are a modern example of a Faustian bargain. Or perhaps the policy issue can be seen in the saying, “Be careful what you ask for; you just might get it. In spades.”

“Let me get my shoes” #TrumpTheater

Sunday midmorning I was transfixed by CNN’s veritable loop of the minute or so when Trump was shot at and bloodily nicked in the right ear. He ducked and disappeared under secret service peeps until the coast was declared clear. But there was no rushing him off the stage to safety, oh no, first he had to “get his shoes” — I knew then that he was fine — and next he took a BIG MOMENT to stand tall in the embrace of secretservice and to raise his right fist sabay sigaw ng FIGHT! FIGHT! FIGHT! to an ecstatic MAGA crowd. WHAT.A.SHOW.

Was it staged, as many are saying on social media, or was it the real McCoy, a failed assassination attempt? Easy to speculate and imagine behind-the-scenes conspiracy scripts of all kinds, from all sides, but first let’s hear it from the FBI. And maybe the CIA?

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The Mass Psychology of Trumpism
In the minds of his most ardent supporters, the ex-president is both more and less than a person
By Dan P. McAdams

120 years of America

These days find me wondering, what if, ano kayâ, kung hindi tayo sinakop nasakop ng America after we had won the war against Spain in 1898.  Ano kayâ kung hindi tayo masyadong naniwala sa pangako na ikaaangat, ikabubuti, ikagiginhawa, ng Pilipinas ang pagsuko sa Amerika. A century and some 20 years later, maliwanag na kalunus-lunos ang sinapit, tuluyang sinasapit, ng nakararaming Pilipino. Worse, nasabit na tayo nang bonggang-bongga sa hidwaang Amerika-Tsina. 

Sharing here excerpts from two opinion essays: ‘Separate and equal’ by Michael Lim Ubac and In the Philipines, Haunted by History by Gina Apostol. Good to be reminded what we’re up against, still.

‘SEPARATE AND EQUAL’ 
by Michael Lim Ubac
June 13 2024

… History tells us that neither Spain nor the US acknowledged the provisional government established by Aguinaldo in 1898 or the formal declaration of independence ratified by the Malolos Congress in 1899. Instead, Spain ceded the Philippine archipelago to the US for $20 million on Dec. 10, 1898, through the Treaty of Paris. The treaty relinquished Spain’s control of Cuba and gave away its other colonies, such as Guam, Puerto Rico, and the Philippines, to the US. It also sounded the death knell for over four centuries of the Spanish Empire, and provided the US with a renewed sense of confidence—a sense of manifest destiny, as it were, for its future as a Pacific power.

This still-evolving American foreign policy would logically undermine the goals for self-determination of the nascent Philippine republic. With virtually all of the Philippines outside Manila already under the control of Aguinaldo’s forces after shaking off the Spanish yoke, Filipino revolutionaries and at least seven million Filipinos were prepared to settle and enjoy the benefits of hard-fought freedom. But when Private William Grayson, a member of the Nebraska Volunteer Infantry Regiment, opened fire on Filipino soldiers at 9 p.m. on Feb. 4, 1899, that shot ignited what would become the Filipino-American War. The rest is history.

One vote. Strategically, the McKinley administration saw Manila as an ideal location to defend US interests in China against European interventions. The presence of the US could also increase American influence in the far east. But the Treaty of Paris had a polarizing effect on American politics. It was narrowly ratified by the Senate on Feb. 6, 1899, with just one vote more than the necessary two-thirds for approval.

In 2011, while researching at Harvard’s Widener Library, I stumbled upon a pamphlet that contains excerpts from a three-hour speech of US Sen. George F. Hoar on April 17, 1900, during the debate on the ratification of the treaty. Hoar vigorously opposed the conquest of the Philippines, describing the archipelago as “a nation entitled as such to its separate and equal station among the powers of the earth by the laws of nature and of nature’s God.” Hoar could not fathom why America had to civilize a country like the Philippines, which already had a “written constitution, a settled territory, an independence it has achieved, an organized army, a congress, courts, schools, universities, churches, the Christian religion, a village life in orderly, civilized, self-governed municipalities; a pure family life, newspapers, books.”

Hoar acknowledged the intellectual prowess and patriotic fervor of Filipinos, saying it had “statesmen who can debate questions of international law, like [Apolinario] Mabini, and organize governments, like Aguinaldo; poets like José Rizal; aye, and patriots who can die for liberty, like José Rizal.” He added: “No people can come under the government of any other people, or any ruler, without its consent.” Hoar then asked his colleagues whether it was justifiable to “crush that republic, despoil that people of their freedom and independence and subject them to our rule.”

“Is it right, is it just, to subjugate this people? To substitute our Government for their self-government, for the Constitution they have proclaimed and established? … Are these mountains of iron and nuggets of gold and stores of coal, and hemp-bearing fields, and fruit-bearing gardens to be looked upon by our legislators with covetous eyes?” he asked.

Hoar’s questions are still relevant today, even though the international context has evolved. Since 1946, the Philippines has had a trusted economic and military ally in the US. The Philippines remains valuable geopolitically to the US even as its economy is closely tied to China.

***

IN THE PHILIPPINES, HAUNTED BY HISTORY
By Gina Apostol
April 28, 2012

THE Philippines is haunted by its relationship with the United States. I remember the day, in 1991, when the Military Bases Agreement between the two countries was rescinded. The headlines yelled, finally: Freedom! But worrywarts held on to their beads. Clark Air Force Base and Subic Naval Base were America’s largest overseas outposts — powerful vestiges of colonial rule decades after the American occupation, which lasted from 1899 to 1946, had ended. In American history books those decades have fallen into an Orwellian memory hole: lost or abridged.

On the Philippine side, however, the relationship with America looms like Donald Barthelme’s balloon, a deep metaphysical discomfort arising from an inexplicable physical presence. In Barthelme’s story “The Balloon,” a huge glob inflates over Manhattan, affecting ordinary acts of puzzled citizens for no apparent reason. American involvement in Filipino affairs sometimes seems like that balloon, spurring fathomless dread. Bursts of anxiety over the bases’ return pop up every time America finds a new enemy.

The high-level April 30 [2012] meeting between the United States and the Philippines in Washington occurs during a standoff between Beijing and Manila over disputed territories. Hillary Rodham Clinton has called the contested portion of the South China Sea “the West Philippine Sea,” fanning Chinese ire and Filipino nationalism alike over obscure islands known by most as the Spratlys. (They have oil, and China wants it, too.) And tensions have not been soothed by joint military training exercises featuring 6,000 American and Filipino troops practicing so-called mock beach invasions on the coast facing China. Indeed, as America pivots to Asia and China rattles Manila, old phantoms are rising.

… The bases haunt us because they emerged during a dreamspace, when we still believed in our capacity for revolution. America “friended” the Philippines during our 1896 war against Spain then “unfriended” us when it paid Spain $20 million dollars for the islands in 1899. The building of military installations began apace, in step with the trauma of our sense of betrayal.

We agitated against the Clark and Subic bases during the Marcos years, that conjugal dictatorship propped up by American good will. There are photographs of the Marcoses with every American president since 1965, many on Wikicommons: Imelda dancing with the sweaty and the suave: with Nixon, as the Vietnam War waxed, and Reagan, as the cold war waned. A brutal war against ill-equipped, proto-Maoist insurgents kept the Marcoses, and American guns, in business. It’s no surprise that the bases became a linchpin in our constitutional debates after we threw out the dictator in 1986.

… Our brand-new 1987 Constitution banned foreign bases, but America’s lease wasn’t up for four more years. Pundits quipped that only an act of God would kick the bases out. God obliged. Mount Pinatubo erupted in 1991, pulverizing Clark Air Force Base and devastating Subic. America abandoned Clark and moved to renegotiate the bases treaty. I remember the day the Senate rejected the treaty because my own child was newborn, of age with the country. President Corazon Aquino, a sugar heiress whose family made a fortune during World War II providing alcohol to American G.I.’s, reluctantly signed it in 1991.

A smoldering volcano, Mount Mayon, had heralded the arrival of American forces in 1899, and in a seismic mirror Pinatubo ushered them out — a nation foretold by tectonic shifts. In between the acts, rubble remains.

American policy has always benefited the Filipino elite — the Marcoses, the Macapagal-Arroyos and the current presidential family, the Cojuangco-Aquinos, are among the handful who have reaped a bonanza. The interests of the oligarchy are the ties that bind. Our spectral angst is not so immaterial: our dread is drenched in military dollars and haunted by civilian blood.

***

The National Interest

#AtinAngAyungin #AtinAngRecto

On the one hand, I’m glad former president Duterte and his Davao cohorts are on the side of more than 7 of 10 Filipinos vehemently against the Romualdez-Marcos chacha train(wreck).  On the other, I’m aghast that they’re so against PBBM rescinding Duterte’s “status quo” agreement  with China, the regional bully that some 7 of 10 Filipinos do not trust, and rightfully so, for obstreperously laying claim to and encroaching on our territorial waters and resources.

The threat, “that there will be trouble” if we dare bring construction and repair materials to the grounded BRP Sierra Madre in Ayungin, or if we dare dig for oil and gas in Recto, should not stop us from standing up for our rights the way Indonesia and Malaysia did two years ago. Read Jarius Bondoc‘s 2023 column on Recto (Reed) Bank. https://www.philstar.com/opinion/2023/08/30/2292356/drill-recto-gas-oil-now-our-national-survival

Recto is 120 miles from Palawan, well within the Philippines’ 200-mile exclusive economic zone. It’s 650 miles from Hainan, China’s nearest province, thus outside its EEZ. The Hague arbitral court affirmed that in 2016. China can’t claim it by (an) imagined “nine-dash line.”

Recto has proven reserves. In 2013 the US Energy Information Administration estimated it to hold 5.4 billion barrels of oil and 55.1 trillion cubic feet of gas. That’s 63.5 times more oil and 20.5 times more gas than Malampaya, whose lifespan is only 24 or so years.

The Philippine government has long awarded Service Contract-72, covering Recto. Manuel V. Pangilinan’s PXP Energy Corp. and subsidiary Forum Energy Ltd. are ready to drill.

Trespassing Philippine EEZ, Chinese gunboats chased Forum’s vessels away several times. In 2020 the Duterte admin contemplated joint exploration with China National Offshore Oil Corporation (CNOOC). Talks failed as CNOOC’s terms violated the Philippine Constitution.

Forum remobilized foreign partners to drill. President Rody Duterte stopped it after receiving a call from Beijing, [Justice Antonio] Carpio recounts. “Twice Forum lost millions of pesos in false starts. Let it proceed now under Philippine Navy protection. National survival depends on it.”

Defy China.

“Let’s do it the way Malaysia and Indonesia did two years ago,” Carpio proposes.

… Beijing also claims Malaysia’s EEZ and Indonesia’s Natuna Isles. Invoking our Hague ruling as support, Malaysia held naval exercises with the US and Australia while drilling oil nearby. Indonesia invited a US aircraft carrier to sail by while drilling in Natuna.

On both occasions Beijing shrieked about owning the entire South China Sea by historical right. Kuala Lumpur and Jakarta ignored it. They’re reaping benefits from their petroleum resources, Carpio notes.

The Philippines can install rigs while holding drills with the US Navy under the Enhanced Defense Cooperation Agreement. As well, with the British Admiralty because Forum was incorporated in London. A petroleum-sufficient Philippines will ease world demand and prices.

And here’s Fr. Ranhilio Callangan Aquino in a recent Manila Times column: https://www.manilatimes.net/2024/04/17/opinion/columns/gentlemen-and-the-status-quo/1941929

To those who would have us tremble before China’s might, fearful that it may unleash its volley of munitions against us, Justice Antonio Carpio, who has studied both the facts and the law on this case, allays such fears. China will think long and hard before it pushes the button of hostilities because it is cognizant of the Mutual Defense Treaty, which both the Philippines and the United States understand it today. There are those who urge the Philippines to junk the treaty and have long touted the line that the MDT did not cover such scenarios as armed hostilities against the Philippines initiated by the PROC. We now know that to be untrue. The US-Philippines Bilateral Guidelines as well as recent public statements of US President Biden leave no doubt about this.

Lately, China has dealt “the victim card” — naively echoed by some Western news outlets and chat programs. It claims to be the victim of a scheme of encirclement by the US, Australia, Japan and India — quaintly called the Quad. But it will be good to remember that this strategic alliance was born not from some smoky bar where the leaders of these countries had nothing better to do than to conjure alliances to threaten other countries. It arose rather when it had become undeniable that China was relentless in its expansionism, when border tensions with India were approaching boiling point, when it became apparent that its Belt and Road Initiative had allowed it strategic access to points it deemed crucial for its maritime, military and political ambitions. [bold mine]

Notwithstanding the fact that the PROC has thumbed its nose at the arbitral ruling in favor of the Philippines, one will not fail to notice that in every discussion on the South China Sea-West Philippine Sea dispute, the arbitral judgment that was resoundingly in our country’s favor comes up because a binding legal pronouncement as to our rights is always significant and undeniably confers ascendancy on us. It is in this light that I have long advocated that the unresolved disputes over territory should now be the subject of a case before the International Court of Justice or by some other competent international forum.

If this seems like putting undue trust in the workings of international law, my riposte has been constant: It is only the adherence of the community of nations to a rules-based order, the dominance of international law, that the fundamental principle of sovereign equality of States can be a reality in a world of glaring inequalities.

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Rumblings by Iris Gonzales

Regional bully by Boo Chanco

A sellout of our sovereign rights by Joel Ruiz Butuyan

Can we defend our nation without America? Yes by Ricardo Saludo

Of disadvantageous treaties, sedition, and espionage by Jemy Gatdula

‘Coercive tactics’ by Ana Marie Pamintuan