By Vincent Mariel P. Galang, May 31 2019; Business World
Image Credit to Philippine Star
THE Philippines may not benefit from the ongoing US-China trade war as some firms caught in the middle of the “tariff” war are opting to relocate to Vietnam and Malaysia, where infrastructure is deemed better and production costs are cheaper, according to trade experts.
Hinrich Foundation Research Fellow Stephen Olson said Chinese firms affected by the trade war will likely relocate to the Asean region but would prioritize Vietnam and Malaysia for their better business environments.
“Countries like Vietnam and Malaysia, frankly speaking, are in the better position to reap those benefits in particular due to better ICT [Information and Communication Technology] infrastructure, efficiency of labor, customs, and ports,” Olson said in a recent roundtable with reporters.
“These are the competitiveness factors that would attract [relocating Chinese firms]. And indications show that spillage of outward movement from China [is] more likely toward Vietnam and Malaysia than it would be in the Philippines,” he added.
Meanwhile, World Trade Organization (WTO) Deputy Director General Alan Wolff noted that the Philippines has a “stake” in the “amicable” resolution of the US-China trade war since the two big economies are the country’s top trade partners.
However, Wolff pointed out that trade war could still cut both ways for the Philippines.
“There can be distortions in several directions in trade flows which would benefit the Philippines, some of them would hurt the Philippines,” he told the BusinessMirror in an interview in Geneva, Switzerland, in mid-May.
“For example, the Philippines is part of a global value chain and is caught up in a bilateral dispute such as the US and China. That could be a negative; on the other hand, there are companies that are looking for alternative sources that could benefit the [Philippines],” he added.
Olson, a former US trade negotiator, cited reports that the Philippines may see somehow an uptick in investment in factories manufacturing automotive parts as some Chinese firms relocate in Manila.
“We see the trade dispute between the US and China to result in ripple impacts throughout the region, but they can be a double-edged sword,” he said.
“Trade diversions can cut both directions” with some economies getting hurt and some benefitting, he added.
Not caught in the middle
One thing is certain for the Philippines as global trade is impacted by the US-China trade war: slower business growth, Philippine Mission to the WTO Special Trade Rep. Jose Antonio S. Buencamino said.
“The thing is, trade war slows down global growth. Look at the forecasts of [World Bank], [International Monetary Fund], all their forecasts indicating slower global trade, and when the global businesses slow [down], who suffers? Everybody suffers,” Buencamino told the BusinessMirror in an interview in Geneva, Switzerland, on May 16.
Buencamino noted that the Philippines may benefit from the US-China trade war if Chinese firms evading the high tariffs slapped by Washington relocate to the country.
“But what if Vietnam gets all those businesses moving out of China? Right now, it is Vietnam getting them,” he said.
“It’s never a sure thing that the business is yours. It’s a global thing: when business globally is good, then we do well; when global business is slow, then we are also slow,” he added.
Nonetheless, Buencamino said the Philippines “is not caught in the middle” of the US-China trade war: “We are watching. We are not that important that we have ourselves caught in between.”
President Duterte recently expressed deep concern over the escalating trade war between the United States and China which he said is “becoming a protracted war on the global and trade investments everywhere.”
“We are deeply concerned about the ongoing trade war between the US and China. And it is creating uncertainty and tension. It is causing downward stressors on the global economy,” Duterte said in his speech during the 25th Nikkei Future of Asia Conference last Friday in Tokyo, Japan.
“The world is watching in earnest. There must be a resolution soon,” he added.
The US and China are among the country’s top trade partners, Philippine Statistics Authority (PSA) data showed.
In the January-to-March period, the US emerged as the country’s top export destination while China was the top import source.
The US cornered 16.1 percent or $2.64 billion of total exports, while China accounted for 21.3 percent or $5.58 billion of total imports during the period.