By Butch Fernandez, Recto Mercene & Catherine N. Pillas
AS real-estate mogul and business magnate Donald J. Trump ascends to the presidency tomorrow, January 20, emerging economies are speculating how the United States’ ties with Asia, solidified during former President Barack Obama’s term, will evolve.
Foreign direct investment (FDI) from the US reached $1.3 billion in 2013, making it the third top FDI source for that year. Three years later, the US ranked as the Philippines’s third-largest trading partner, coming in after China, for the first semester of 2016. The country enjoys a trade surplus of about $913.09 million with the US.
In the case of the Philippines, early reports say a Trump presidency will signal a slowdown in the country’s business-process outsourcing (BPO) industry, considering Trump’s pledge to revive US industrial jobs, essentially affecting off-shored jobs.
Trump, who will be inaugurated on January 20 as the 45th US president, has taken a clear protectionist stance on trade and economic issues, issuing threats this week to foreign carmakers that he will impose a border tax on vehicles imported into the US market.
In the run-up to the US elections, he, likewise, warned any American company planning to shift operations abroad of a hefty 35-percent tax.
This has borne fruit as the president managed to convince United Technologies Inc., the company that owns air-conditioner manufacturer Carrier, to keep operations in its Indianapolis plant instead of shifting production to Mexico.
BPOs
IN the Philippines the BPO industry comes to mind as among possibly the first collateral damage of a US protectionist stance. The Information Technology and Business Process Association of the Philippines said in its road map that 70 percent of the outsourcing work received by Philippines-based BPOs comes from the North American market.
The Ibpap has kept mum on the effects of geopolitical currents affecting the BPO industry, business groups have weighed in.
Philippine Exporters Confederation Inc. (PhilExport) President Sergio R. Ortiz-Luis Jr. noted that while the BPO industry, essentially an export-service industry, may be hit with Trump’s policies, the country’s cost-effectiveness as a destination will prevail.
“But remember, [President Barack] Obama said he will also try to bring back those off-shored jobs and he didn’t do it,” Ortiz-Luis said. “That’s because the cost for them to bring back those BPO jobs to the US is four times as expensive than when they outsource it here.”
The Philippine Chamber of Commerce and Industry (PCCI), the country’s largest business organization representing mostly small and medium businesses, echoes this sentiment, saying curbing the growth of BPO companies here is “next to impossible”.
A paper by the Bangko Sentral ng Pilipinas (BSP) revealed that the US remained as the major market for the country’s IT-BPO exports, accounting for 80 percent (or $7.6 billion) of the industry’s total exports in 2010.
“Exports to the US comprised 73.1 percent of total IT-BPO exports in 2009. Other leading markets in 2010 included Europe and Japan, representing 9.9 percent [$939 million] and 3.6 percent [$341 million], respectively, of the total export-market share,” the BSP document said. “This developed as BPO firms in the country took advantage of the increasing offshore outsourcing activities of European and Japanese companies.”
Cautiousness
BUT also for the PCCI, President-elect Trump’s protectionist rhetoric may, in general, make American businesses more cautious to show interest in the Philippines in the future.
“In reality, there is that cooling down on the diplomacy front. There is that awareness now that even if the United States is a huge investor in the Philippines, there are other countries that are more aggressively investing in the country,” PCCI President Jeorge Barcelon said, alluding to the renewed interest of China in strengthening relations with the Philippines.
Nonetheless, there could be a silver lining for the Philippines, as the tumultuous relations between the US and China, and the Philippines cozying up to the latter, may mean a diversion of investment and trade at least from the Asian neighbor.
“The significant effect of President Trump’s pronouncements recently is not on us, but with its relations with China, which is its biggest trading partner. He’s been talking about the manipulation of Chinese currency, so if they are having this unfavorable trade relations it might benefit us,” Barcelon noted.
“Chinese companies may opt to invest in the Philippines, to route their exports to the US market. There’s that angle. Right now the perception is that there’s no parity between China and the US, so he may very well impose higher import duties from goods coming from China,” the PCCI head added.
Optimism
SENATORS aired guarded optimism when asked if they foresee bright prospects or dark clouds in US-Philippines trade and economic relations under the Trump administration.
Senate Minority Leader Ralph Recto says it is “too early to make a call.” Still, Recto suggests “we must prepare for worst, best and most likely scenarios.”
This, even as Senate Majority Leader Vicente C. Sotto III saw better potentials in RP-US ties, given that the new tenants at Malacañang and the White House are seen to have “good vibes.”
Sotto noted: “Vibes si President Duterte ni Trump.”
For his part, Sen. Juan Edgardo Angara voiced positive expectations.
“Hopefully, [Philippines-US] relations will remain good, if not improve, under the new administrations,” Angara says, adding, “Fresh approaches are always welcome.”
Angara also notes that “both administrations are pro-business.”
Tectonic
AFTER what appeared to be a tectonic shift in the Philippines’s deeply entrenched relations with the US—which some of World War II vintage commonly assume as “special”—many Filipinos suddenly woke up to the reality they now have a popular and vulgar president.
President Duterte dares to challenge that mistaken assumption on US-Philippines relations and announced to the world that he would cut the country’s 70-year-old ties with Uncle Sam.
In a speech during his visit to China during an economic forum in October last year, Duterte said before his probably surprised hosts:
“Your honors, in this venue, I announce my separation from the United States…both in military and economics also.”
His remarks were met with applause.
Not content with that world-shaking statement, he also said he would strengthen ties, not only with China, but also with Russia’s Vladimir Putin.
“I’ve realigned myself in your [China] ideological flow and, maybe, I will also go to Russia to talk to Putin and tell him that there are three of us against the world—China, the Philippines and Russia,” he said. “It’s the only way.”
China
DUTERTE made his comments in China, while he was visiting with at least 200 businessmen, to pave the way for what he calls a new commercial alliance as relations with longtime ally the US deteriorate.
The shockwaves reached the White House and officials in Washington, D.C., reportedly were puzzled by the announcement, coming three months after the Tribunal of the Permanent Court of Arbitration in The Hague declared China’s island-building in the South China Sea were illegal.
The looks of puzzlement among US officials have since faded away, apparently replaced with resignation or a wait-and-see attitude.
True to his word, Duterte made a state visit to Beijing on October 21, 2016, and came back with an economic bonanza worth $24 billion, as well as agreeing to resume talks and explore areas of cooperation in the South China Sea.
China will provide $9 billion in soft loans, including a $3-billion credit line with the Bank of China, while economic deals, including investments, would yield $15 billion.
Preliminary agreements in railways, ports, energy and mining worth $11.2 billion were signed between Philippine and Chinese firms.
Duterte is also scheduled to visit Russia in May on the invitation of President Putin.
Relations
THE BusinessMirror had an exclusive interview with Foreign Secretary Perfecto R. Yasay Jr. at the airport while he was on his way to the Middle East. He said he is on a mission to prepare the Filipino communities there for the coming visit of Duterte, soon after his Russia sojourn.
Yasay was at the Dignitaries Lounge of the Ninoy Aquino International Airport, waiting to board a Thai International Airlines flight, scheduled to leave at 8:30 p.m.
The BusinessMirror asked Yasay for an opinion about the state of the country’s diplomatic relations with the US following Duterte’s pivot to China and Russia.
“We are not pivoting to China in the sense that we are weakening our relations with the US,” he said. “We had never planned to cut that relations to begin with, just really set the basis upon which we would like to pursue that friendship in a close manner, in an environment of mutual respect and being treated as an equal.”
“We’re just following the mandate of the Constitution, which says that we should pursue friendship and amity will all nations, and that is exactly what we were doing,” Yasay added. “Of course, even the US has never expected that this is how we will be carrying our foreign policy. In the past we have always been dependent with the United States.”
According to Yasay, Cabinet officials have always acted on the basis “of what the United States have wanted us to do in terms of how we would be relating with other countries.”
“And now with a change in administration, with President-elect Trump taking office soon, we are optimistic and hopeful that, perhaps, the new leadership would be more open to receiving the correct stance, in the light of the geopolitical reality in this part of the world: That our position is the right one to take,” Yasay said.
Convergence
THE geopolitical reality Yasay seems to refer to pertains to China’s dramatic rise on the world stage.
Once an inward-looking society, China has gone full steam ahead in the last 30 years and forged economic links with some Southeast Asian nations and the rest of the world.
China is on the way to achieving a blue-water navy and has gone to great lengths to display its new-found muscle. It has conducted military drills in the Western Pacific, far beyond its shores, led by a refurbished aircraft carrier and accompanied by a fleet of modern battleships.
Its economic clout has enabled it to turn submerged features in the South China Sea into instant islands, bristling with modern weaponry.
The US, once referred to as the world’s policeman, failed to arrest China’s island-building in the South China Sea, thus its allies in the region see the once-mighty superpower as a weakened giant.
“America, of course, when it decides to exert its influence in this part of the world, will not be doing so simply because it wants to help us. But they are really doing so because they want to carry and advance its own national interests,” Yasay said.
“And if our own national interests converge with theirs on that basis, then there is a mutuality of that interest. But we must not lose sight of the fact that when the Philippine acts insofar as our dealing with China, Russia and the US are concerned, we are doing this in the light of our national interests, as well.”
Big brother
Although in the beginning Duterte’s decision to pivot toward China was met with skepticism, today, political analysts seem to agree with his decision.
His move to befriend China and Russia, they say, may be more beneficial for the Philippines, as the country moves toward a more independent foreign policy.
Political analyst and international columnist Richard Heydarian said the Philippines would need other “big brothers” as it asserts greater independence from longtime ally United States.
“For the President, it’s more important to diversify more relationships toward Russia and China because he feels that, if the Philippines wants to assert more independence from the US, and in light of the human-rights violations issue, you need other big brothers to help you out,” Heydarian said on Mornings @ANC.
Asked for his reactions on how he thinks the foreign diplomatic community will engage with President-elect Trump, Yasay said, “It’s up to them; they also have their own national interests.”
“Ang sa atin, while we are mindful and respect their positions, we just want them to understand and to accept the fact that under international law, they cannot interfere with our own domestic matters,” he explained. “They can, perhaps, try to explain to us their position and maybe hope that we will also accept their position, but at the end of the day, we have to make the decision on the basis of our own national interests. We expect them to make their own decision on the basis of their own national interests.”
Image credits: Noel Celis/Pool Photo via AP, Wu Hong/Pool Photo via AP, AP/Sakchai Lalit