Part I
There is a sharp contrast in the continuing contest in the economic policy pursued by US President Donald Trump from that of China’s President Xi Jinping. Both may have nothing to do anymore with ideological competition but definitely the competition serves as a template to global economic development. This is expected to heighten because most economists expect China to overtake the US as the world’s largest economy with many political pundits predicting the end of the mighty Pax Americana.
One can already see the stark difference in the approach being pursued by Xi from that of Trump. It is as one would put it, a contrast between the “bilateralist” policies of the US to the “multilateralist” approach of China. Some observe this as an indication of a shift in policy which the US originally initiated as seen by its support for the various regional economic blocs. Now, in the recently-concluded conferences of the Association of Southeast Asian Nations and the Asia-Pacific Economic Cooperation, it was apparent that the gathering only enjoyed the lukewarm support of the Trump administration.
The multilateralist approach to global economic development became the fashionable mode after the General Agreement on Tariff and Trade was organized in 1947 and replaced by the World Trade Organization in 1994 of which the principal goal was the elimination of tariff barriers. This was later followed by the creation of the various regional economic blocs of which the members gradually changed their tone from one zeroing in on tariff to one of cooperation to complement each other’s economic development.
This approach popularly known as “globalization” earned its ugly connotation, for often the mechanism was solely geared towards promoting their respective trade advantage that residually caused economic retardation. However, the continuing recession and stagnation of the economies of the highly industrialized world led by the US, Japan and Western Europe served as eye-opener to shift their production base to the less-developed countries of Asia to take advantage of the low value of their currency and wage. Some members then began to experiment in manipulating the currency to exact maximum profit. The US was the first to take this option because of recession, inflation, and of high production cost.
It was through this channel why China’s philosophy of “yin and yang” that everything in the universe consists of two opposing forces that complement was recognized and used to their own advantage. Instead of seeing things negatively, China and the rest of Southeast Asia took the new global economic trend positively against the backdrop of tumultuous opposition of many. This explains why debate continues to rage. If some were trapped deeper into debt, that is now being debunked because the US ended up as the biggest debtor in the world with an astounding debt of $20.1 trillion.
It is fast losing its grip as the leader in the world economy and worse, it is internally hounded by a widening gap between the rich and the poor with poverty slowly creeping into their society. Thus, the shift in the US approach to negotiating on a one-and-one basis is being justified by Trump claiming that the US has been “unfairly treated.”
Even if that was merely used as gambit to capture the presidency, it is hard to accept because US is not only an economic but a global military superpower that commands great respect and influence. In fact, many of those concluded agreements were marred by US pressure, and for such slightest violation, member states are being punished with fines and trade sanctions even before the WTO could impose its verdict.
According to American author, Thomas L. Friedman, the objective of globalization is to level the playing field between industrial and emerging market countries. Free trade is, in fact, a recognition of the old “comparative advantage” theory of Adam Smith that countries should develop certain products to its own advantage while discarding products they can buy from countries that could produce them at cheaper prices.
Looking at it, the Trump administration now comes in with the usual braggadocio of accusing some of its leading trade partners of “unfairly” treating the US. President Trump now directs its rile on Mexico, China, Canada, Japan, South Korea and all these countries that happened to manufacture goods and export them at cheaper prices. In that, one is tempted to ask just how the US was unfairly treated when it is the one that virtually dictates the rules of the game as often said in Trump’s arrogant slogan of “America first.”
Notably, in the early period when the world was recovering from the ravages of the Second World War, the US was supportive in helping countries to economically develop. This was seen in their announcement of the Marshall Plan in 1948. The US extended to Western Europe $13 billion that by today would have an equivalent value of $135.4 billion. That has changed. The trade balance has slowly shifted, and the US is now blaming countries for its huge trade deficit. In 2016, it incurred a $509.2 billion, importing $2.712 trillion while exporting $2.208 trillion.
The US cannot attribute the problem to its economy on cheap imports much that it promoted that system and was the first to take advantage of it. After the US decoupled its currency from the gold standard in violation of the Bretton-Woods Agreement, it tied to keep the value of its currency to again take advantage of cheap unprocessed goods. The US then has yet to feel the crunch about the long term effect of the high value of their exports, unaware that it was the same trick of the trade that would erode their market.
Underdeveloped countries slowly and gradually produced their own goods as a way to sustain their own economies. Later, countries that originally jacked up the value of their currency soon experienced the same malaise suffered by exporters from developing countries. The proposition that US products manufactured and assembled in China and the rest of Southeast Asia would be much cheaper was not true. US companies that refused to relocate their manufacturing plants outside the country sought to impose the same amount of excise tax arguing that the country already suffered from loss of employment, and they cannot now be accorded preferential treatment on the basis that they are returning US branded products. In effect, their objective of generating more profit by consigning production outside the US was a myth.