In news that quite likely caused the Left to undergo gleeful paroxysms (rather than their usual outraged convulsions), the IMF was said to report (via a paper, “Neoliberalism: Oversold” by Jonathan Ostry, Prakash Loungani, and Davide Furceri; June 2016) that “instead of delivering growth, some neoliberal policies have increased inequality, in turn jeopardizing durable expansion.”
At a time when socialist and “progressive” ideas are poised to dominate the world, for the IMF -- which the British newspaper The Independent labeled as “one of the key international proponents” of neoliberalism -- to admit the foregoing seems to have put the proverbial final nail upon the hated free market.
However, closer study reveals the IMF’s verdict as narrower than publicized. The “assessment of the [neoliberal] agenda is confined to the effects of two policies: removing restrictions on the movement of capital across a country’s borders (so-called capital account liberalization); and fiscal consolidation, sometimes called ‘austerity,’ which is shorthand for policies to reduce fiscal deficits and debt levels.”
To emphasize: the point being made very clearly here is that at a time when protectionism is being lauded, international trade was not the actual target of the IMF’s confessional.
This is important because with a new Philippine government set to come in, the temptation to reverse policies on trade liberalization will predictably be there.
This amidst the bizarre politics within the very country everyone is looking for leadership in relation to trade and that is the United States. As described by Daniel Ikenson (“Trade on Trial, Again”; June 2016), its thinking on trade seems to have taken a turn to the surrealistically unfortunate:
“To cheering crowds, Donald Trump promises to slap duties on imports from China and Mexico and to use the tax code to punish US companies that outsource parts of their operations abroad. Bernie Sanders vows to tear up NAFTA and other free trade agreements, calling them ‘a disaster for American workers.’ Hillary Clinton, a co-architect of the Trans-Pacific Partnership trade agreement (TPP), now opposes that deal, while promising to disregard certain US treaty obligations with China.”
Nevertheless, if Filipino demagogues against trade are correct, then they should be very happy right now.
Philippine trade performance so far has been dismal: preliminary figures as of March, our exports went down by 4.5% (to $4.61 billion), while our imports went up by a whopping 11.71 or $6.36 billion. This represents a trade deficit of $7.1 billion.
The foregoing within the context of final trade figures for 2015 of $58.83 billion, with imports at $71.07 billion, resulting in a trade imbalance of $12.24 billion. That amidst a foreign direct investment performance averaging for the past five years (ending 2015) at P41129.66 million.
Most of our imports come from Japan: $12.4 billion (21.1% of total Filipino exports), United States: $8.8 billion (15%), China: $6.4 billion (10.9%), Hong Kong: $6.2 billion (10.6%), and Singapore: $3.6 billion (6.2%).
Top export partners (using the 1st semester of 2015 as basis) are Japan (at top spot), followed by China, US, Singapore, and Hong Kong.
The problem here is that our trade -- both in terms of goods and identity of our partners -- is narrow in breadth, with 82.7% of our exports revolving merely around ten product groups, while our trading partners list is dominated by Asian countries (the latter accounting for 60% of our total trade). APEC itself constitutes 80%. On the other hand, trade with the EU hovers merely around 11%. And business with Australia and New Zealand leaves a lot of room for improvement.
But we know the protectionist lobby (i.e., the Left backed up ironically by the oligarchs) by railing against trade merely ensures the continued poverty of 51% of Filipinos (who think themselves poor), 26 million Filipinos (that are actually below the poverty line), and at least 12 million of our citizens (sadly living in “extreme poverty”).
The problem, as Ikenson himself admits, is that “the case for free trade is not obvious. The benefits of trade are dispersed and accrue over time, while the adjustment costs tend to be concentrated and immediate. To synthesize Schumpeter and Bastiat, the ‘destruction’ caused by trade is ‘seen,’ while the ‘creation’ of its benefits goes ‘unseen.’”
Indeed, trade, whether in the form of exports (whose benefits should be obvious) or imports (which “deliver more competition, greater variety, lower prices, better quality, and new incentives for innovation”) can only be good for a still economically developing country like the Philippines.
Global inequality there may be, along with domestic inequalities. But such could certainly be mitigated by rising incomes: poorer countries that traded saw per individual incomes rise 3.6% higher than closed economies; and Jeffrey Sachs and Andrew Warner (1995) found that poor countries with more open trade grew six times faster than those resorting to protectionism.
In sum, the incoming Duterte administration would certainly do well to continue the trade liberalization policies that have helped sustain our drive for economic progress.