The Philippine stock market has sunk to a one-year low in spite of optimism that the economic growth this year will stay robust and exceed the pace of most Asian countries. Overseas developments, notably the rhetoricsbetween the US and China over trade tariffs, have made traders and investors jittery as reflected by the daily charts in Wall Street and Tokyo’s Nikkei index.
Local shares predictably moved in step with the global markets, with the Philippine Stock Exchange Index plunging to a one-year low Thursday. The decision of US President Donald Trump, along with his French and British allies, to bomb Damascus and destroy suspected chemical weapons in the Middle East country has added to the volatility of the global financial markets and caused global oil prices to spike.
The prospect of a trade war between the US and China, however, is the more serious threat to the global financial markets. Finance Secretary Carlos Dominguez III has conceded that a trade war between the two economic heavyweights could dampen economic growth in the Philippines and the rest of the world.
“We can’t say if there will be a minimal impact because we really do not know what is going to happen… And you know quite frankly, there is no winner in a trade war. So if our two markets get hurt, China and the US, we will also get hurt… I’m really concerned,” says Dominguez. The US earlier imposed tariffs on imports of steel and aluminum from China. China retaliated by levying tariffs on US goods, including pork, wine, fruit and nuts.
A trade war, if it escalates, will inevitably affect manufacturing and investments in the Philippines. The tit for tat will result in reduced exports of the US and China to each other. Lower trade translates into reduced production from both countries. For companies serving as suppliers of affected Chinese and American firms, the trade war will correspondingly reduce the output of third parties.
Filipino factories could be a casualty from the lower economic output of the US and China. Jobs could also be lost in the process. Local authorities, thus, must prepare the Philippines if the trade war breaks out. The Philippine government should start diversifying its export market and try to lessen its dependence on the two economic powerhouses.
