Free trade

The world veered off course just last week onto a road less travelled, at the annual meeting of the G20 finance ministers in Baden Baden, Germany.

For the first time in a decade, the collective managers of the developed world’s finances abandoned their traditional defense of free and open global trade, at the instigation of the newly appointed US Treasury Secretary Steven Mnuchin.

Mnuchin, a former hedge fund manager and partner at Goldman Sachs, said that he wanted to “review certain agreements,” such as Nafta and some other older trade pacts, as well as some WTO rules. This was clearly at the behest of his boss, who campaigned against Nafta and who’s also pulling the US out of what might have been the largest-ever free trade pact, the Trans Pacific Partnership.


Now I’m old enough to remember when “fair and balanced trade,” Mnuchin’s new slogan, was recognizable as coded language for opposition to free trade. After all, real freedom is rarely fair, or balanced. It’s what we say to our kids when they’re bullied in the playground, or lose to a taller basketball team, or get dumped in romance: Life just isn’t fair.

The whole point of free trade is to specialize in what you’re naturally good at making, to compete on that basis, and then spend what you earn in order to buy the other stuff you need from people who make that other stuff better than you do. Because of that efficiency, both you and the other guys end up keeping more for your/themselves.

I know that lately we’ve become enamored of the idea that the Philippines is such a big market, with 100-plus million individual consumers and producers, that we don’t really need to trade with anyone any more. But just because we might be able to make everything that we need, doesn’t mean we’ll be doing it at the least cost for the quality we want. Consider:

We’ll probably never be able to match the cost of rice produced in Thailand and Vietnam, which is half our own cost. Both countries are large contiguous areas naturally irrigated by the Greater Mekong river delta. Our harvest yield is actually already higher than Vietnam’s, but we’re still the region’s largest rice importer. 

We’ve pushed the technology envelope pretty far, but our archipelago simply doesn’t have enough irrigable land available. Malaysia finds itself in a similar quandary and has accepted a rice self-sufficiency target of only 80-85 percent.

Our textile mills shut down a long time ago, beaten down by high-volume mass production in capital-intensive economies like the US. Where we might still have a chance is in the downstream production of garments, but even there it’s difficult to match the low labor costs in neighbors like Bangladesh. 

The niche that we’re now exploring is in upscale clothing where the premium is on design and quality. Success in this niche relies, not on cheap capital or labor, but on creativity and imagination. It’s part of our strategy to excel in what Neda calls the “knowledge economy.” And it will succeed only if other countries keep their borders open to what we’ll be creating. 

The jury is still out on whether or not it may already too late for us to build a fully integrated steel industry. Almost every other Asian country already has an integrated steel mill, so the barrier to us in this case may be just lateness to market. 

Some say the fact that we’re among the world’s top five shipbuilders ought to argue for self-sufficiency in steel. But the argument actually runs the other way: Given the current global slump in shipbuilding, and the fact that it’s actually the Koreans who run most of our shipyards, the cost (and quality) advantage of steel imported from mature steel industries abroad will likely resonate louder with shipbuilders who (rightly) care more about competing than cheerleading. 


I suspect that Trump’s crew may have to eat a lot of their words soon.

Already the Chinese are pitching themselves as an alternative anchor around whom the TPP, or something similar, can be built. This means they’re offering up their vast home market, as well as more market flexibility with their chronically undervalued currency, in order to satisfy their new policy directions towards less savings and more consumption by their people. At the same time they can leverage this openness into greater access to the labor and natural resources of their trading partners.

The Chinese are also putting their new regional development bank, AIIB, under the same governance rules as other more-established institutions like the WB and ADB, such as prohibited dealings with short-listed rogue suppliers and borrowers. They recognize that the ability to finance your own trade and investment deals with other countries is critical to bagging those deals in the first place.  

And lately, the Chinese have even been taking a more measured and conciliatory tone on issues over which they used to fly into a rhetorical rage, such as accusations of currency speculation or land-grabbing on international waters. In the case of the Philippines, the sweet talk goes over well with China’s pledge to import nearly two billion dollars of agricultural goods, minerals and chemicals from us, and to invest more billions of dollars in highly visible infrastructure projects throughout the country.

At this point, our longstanding partnership with America on regional security—through mechanisms like Edca—is hanging by a thread that gets ever thinner. With US protectionism resurgent, at some point that thread may come down to just sentiment, Hollywood, and Fil-Ams. And that, in an unfair world, may no longer be enough.  

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Topics: Free trade
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