A couple of developments took place last week within the world’s two largest economies that might fairly be described as earth-shaking.
Over in Taormina, Italy, the annual G7 summit wrapped up with a statement that was only six pages long (perhaps including the signature page at that, though we weren’t around to check it out). By comparison, last year’s summit statement was five times longer, at 32 pages.
What spelled the difference between then and now was, of course, Donald Trump’s election to the US presidency. And what a difference that has made, indeed.
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1. On the ever-popular and politically correct issue of climate change, the statement tersely acknowledged that “the United States is in the process of reviewing its policies on climate change and on the Paris Agreement and thus is not in a position to join the consensus on these topics.”
Developing countries have long complained that the carbon restrictions imposed by climate change policy have also stifled their economic growth. With the US still struggling to fully recover from years of very low growth, these complaints are now being echoed by a conservative new president who believes that people’s jobs and incomes are at least as important as the environment.
Even the Holy Father might take a cue from him. Extreme concern for the environment borders on Gaean paganism when it correspondingly ignores the well-being of man, for whose upkeep and upliftment Nature was created in the first place.
2. On the issue of foreign trade, the G7 reiterated their traditional vow “to keep our markets open and to fight protectionism.” But this time they added caveats aimed at “unfair trade practices” and vowing to help those disadvantaged by globalization—clear concessions to the “America First” candidate.
One may quibble that the US government has never abandoned “America First.” When it comes, for example, to protecting their pampered farmers with tariffs, import restrictions, and subsidies, Americans can be first-class protectionists. So when Trump reportedly described German trade practices as “bad, very bad”, that would have been a case of—to put it charitably—the pot calling the kettle black.
But after years of being pummeled in one trade war after another, especially recently with China ascendant, America seems ready, with Trump, to turn even more inward. Nothing good, of course, will eventually come of these “beggar thy neighbor” policies, for Americans or anybody else.
3. On the issue of immigration, the G7 reiterated their traditional support for the rights of migrants and refugees. But in the company of an American president who plans to build a “beautiful wall” on his Mexican border, the statement added that “we affirm the sovereign rights of states, individually and collectively, to control their own borders.”
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For us in the Philippines, the Trumpian assertion of sovereignty rights over border control has translated into recognition of our own right to deal as we see fit with our internal problems, like drugs or criminality or insurgency.
As well, the new inward-looking American mood has given us space to rebalance our foreign relations towards new allies and friends, regardless, I would imagine, of the consternation this causes among militarist neo-cons and State Department bureaucrats.
Thus, the unintended benefit for us may well be an eventual rewarming of US-Philippine relations on a hitherto unfamiliar basis: mutual respect and not one-way dependency.
This unlikely trajectory will be helpful in our ongoing pivot to our giant Chinese neighbor, now that the world’s second-largest economy has been downgraded by Moody’s from “Aa3” to “A1”. This is the first time the rating agency has downgraded China since it began covering them over 30 years ago.
Broadly, Moody’s is concerned that China’s economy-wide debt continues to rise just as their economic growth continues to slow. From a high of 10.6 percent in 2010, GDP growth slowed to 6.7 percent in 2016, on the back of three ongoing structural adjustments:
Slowing capital formation as total investment becomes an ever-smaller part of total expenditures, with the new emphasis on consumer spending.
Faster decline in the working age population, a trend that started in 2014, in the wake of drastic population control policies decades earlier.
Continuing slowdown in productivity despite higher investment and skills
To maintain growth despite these headwinds, more and more fiscal stimulus is required, largely through state-owned enterprises and “policy banks.” But to fund their stimulus spending, these institutions must pile on more leverage, increasing public as well as economy-wide indebtedness.
To be sure, Moody’s acknowledges several credit positives that balance out the risks at China’s new “A1” rating level. These include the sheer size and growth momentum of its economy, the stabilizing effect of pervasive government presence, a largely closed capital account with minimal exposure to external volatilities, large household savings around 40 percent of incomes, and of course a cool three trillion dollars in foreign exchange reserves, a lot of it courtesy of the world’s largest economy.
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As these two behemoths readjust and rebalance, halfway around the world from each other, we ought to remain focused on where we want to go and what we can get from both of them in order to get us there. The time’s long past for sentimental friendships. Now we should be taking to heart the rule that those two countries always followed:
Time to start looking out for Number One.
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