* This is my column in BusinessWorld last July July 9, 2018.
Among the big topics that dominated last week’s global
and national reports are (a) US-China ‘trade war’ which technically means
equalized high tariff (EHT), and the hard push for Charter change towards
federalism by the Duterte-appointed Constitutional Commission (ConCom).
The US-China EHT or ‘trade war’ officially started last
Friday, July 6. The US slapped 25% tariffs on imports from China worth $34
billion and the latter immediately slapped a higher tariff on equivalent value
of imports from the US. There will be a follow up EHT from the US up to $550
billion worth of imports from China and the latter is expected to have its
counterpart.
Meanwhile, funds have fled stock markets of countries
that are expected to be net losers of this trade spat. China’s Shenzhen and
Shanghai are the worst-performing stock markets in the world this year, having
suffered a -19.1% and -16.9% drop in index values year to date (Ytd) or from
January 02 to July 06, 2018, largely because of this EHT spat.
In comparison, the US’ DJIA experienced only a -1.5%
decline year to date.
It is worth noting that the Philippine Stock Exchange
(PSEi) is the 2nd worst-performing stock market in the world after China.
Several business uncertainties in the Philippines this
year helped pull down the PSEi: (a) sharp rise in inflation rate after TRAIN 1
law, (2) changes in fiscal incentives and corporate income tax under TRAIN 2
bill, (3) wholesale closure of Boracay island for six months, (4) political
uncertainties due to rabid federalism and Charter change hard sell by the
government, (5) “Iglesia ni Duterte” vs “idiotic God” pronouncements, among
others.
The PSEi level is also -1.2% compared to past three
years, indicating that the gains under the previous administration have been wiped
out under the Duterte government. This further shows that the federalism hard
sell is misguided for at least three reasons.
One, a big and bureaucratic national government on the
top will have another layer of big and bureaucratic state governments in the
middle, aside from expanding municipal/city and provincial governments.
Two, federalism is no guarantee for economic prosperity
nor political maturity.
While several developed economies have federal
structures, the same can be said about some failing economies.
And three, the current Congress that will finalize the
contents of the revised Constitution is too handicapped by clear lack of
independence from the Duterte presidency. Thus, potential desires by this
administration for continued stay in power beyond 2022 can easily be granted by
Congress.
Trade protectionism is wrong as it penalizes the
consumers while fattening the protected local players. “Trump protectionism” is
similarly ill-intentioned but “Xi/China protectionism” is even worse. A move
towards equalized low or zero tariff is needed.
The hard sell for Federalism is wrong as it will penalize
local businesses and entrepreneurs with more national and local/state taxation
and regulations while fattening many national and local/state agencies and
bureaucracies. A move towards shrinking national taxes and agencies should have
been done before federalism is pushed.
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See also:
BWorld 227, Inflation, taxation, and protectionism, July 14, 2018
BWorld 228, Fare control makes it difficult to get a ride, July 15, 2018
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