Home Blog Page 1053

The Way to the New Cold War

By Dan Steinbock

Despite continued nuclear threats, all US postwar presidents have failed to reset relations with Russia. Why?

The “New Cold War” between the US and Russia began a decade ago. The elevated tensions in the Korean Peninsula are only a part of the collateral damage around the world.

But what led to the new friction? The simple response is the Wolfowitz Doctrine.

The Wolfowitz Doctrine

“to prevent the re-emergence of a new rival, either on the territory of the former Soviet Union or elsewhere that poses a threat on the order of that posed formerly by the Soviet Union”

In late 1989, Soviet President Mikhail Gorbachev and US President George H. W. Bush declared the Cold War. In February 1990, then-Secretary of State James Baker suggested that in exchange for cooperation on Germany US could make “iron-clad guarantees “that NATO would not expand “one inch eastward”.

As Gorbachev acceded to Germany’s Western alignment on the condition that the US would limit NATO’s expansion, Baker’s own top officials at the Pentagon began to push Eastern Europe in the US orbit.

That’s how the Wolfowitz Doctrine – named by Undersecretary of Defense for Policy Paul Wolfowitz, later the prophet of George W. Bush’s neoconservatives – was developed amid the end of the Cold War.

The Doctrine deemed the US as the world’s only remaining superpower and proclaimed its main objective to be retaining that status. Its first objective was “to prevent the re-emergence of a new rival, either on the territory of the former Soviet Union or elsewhere that poses a threat on the order of that posed formerly by the Soviet Union”.

Bush-Clinton “Shock Therapy” and Russia’s Great Depression

After the dissolution of the Soviet Union in 1991, bilateral ties remained warm between the George H. Bush and Bill Clinton administrations and President Boris Yeltsin until the neoliberal “shock therapy” – the huge privatisation and liberalisation project designed by the World Bank, the International Monetary Fund and the US Treasury – led to a nightmare Depression in Russia.

As Russia struggled for survival, three former Soviet satellites – Poland, Hungary and the Czech Republic – were invited to join the NATO. By the mid-90s, Poland, the Czech Republic, Hungary and the Baltic states were ushered into NATO; against the angry but ultimately futile protests by presidents Yeltsin and Gorbachev.

By then, the 1990s destabilisation had paved way to the rise of President Vladimir Putin who was able to re-stabilise the economy between 2000 and 2008, when Russia enjoyed a major boost from rising commodity prices..

George W. Bush’s NATO Enlargement and Nuclear Primacy Policy

In 2001, President George W. Bush wanted to reset US Russia relations. But if there was a historic opportunity, it was soon lost. After the White House was swept by the 9/11 attacks and neoconservatives’ unilateral foreign policy, it began incursions into Afghanistan and invaded Iraq.

Meanwhile, NATO began looking even further eastward to Ukraine and Georgia, while Moscow’s protests turned angrier.

Most Russians saw the Rose Revolution in Georgia 2003, and US effort to build an anti-ballistic missile defence installation in Poland with a radar station in the Czech Republic, as intrusions into its sphere of interest, along with US efforts to gain access to Central Asian oil and natural gas.

In June 2002, the Bush administration withdrew from the Anti-Ballistic Missile Treaty (ABM), which had been in force for 30 years. The construction of the US missile defence system was feared to enable the US to attack with a nuclear first strike.

The withdrawal was a “fatal blow” to the 1970 Non-Proliferation Treaty (NPT) and led to a world without effective legal constraints on nuclear proliferation. One of its consequences is the ongoing nuclear debacle in the Korean Peninsula.

From Obama Sanctions to Trump’s Reversals

Like Clinton and Bush, President Obama wanted to reset US-Russia relations. By March 2010 both countries agreed to reduce their nuclear arsenals.

Yet, the reset was not supported by his Secretary of State Hillary Clinton, Secretary of Defense Robert Gates and US ambassador to Russia John Beyrle. Subsequently, rising tensions in Crimea were seized to bury the effort.

By the year-end, his administration’s new security strategy named China and Russia as competitive rivals.

What followed was a series of Obama sanctions against Russia in 2014 and 2016, with the support of the European Union (EU).

In the 2016 campaign trail, Trump lauded President Putin as a strong leader, arguing in favour of friendlier relations. Meanwhile, FBI began investigating alleged connections between Trump’s former and current campaign managers and advisers.

In January 2017, Trump and President Putin began phone conferences as the White House still mulled lifting economic sanctions to reset relations with Russia. By May, former FBI chief and the Bush neoconservatives’ loyalist Robert Mueller was appointed to investigate alleged Russian interference in the 2016 US elections.

In the fall, Trump approved still new sanctions on Russia crushing hope for the reset in US-Russian relations. By the year-end, his administration’s new security strategy named China and Russia as competitive rivals.

The Primacy of Wolfowitz Doctrine

It was the Wolfowitz Doctrine that undermined the efforts of four post-Cold War presidents to reset relations with Russia.

In each case, the US “military-industrial complex”– about which President Eisenhower, a five-star general, had warned already in 1961 – has played a critical but low-profile role behind the scenes.

President Clinton did not oppose the military interests, as long as they supported US economic interests. Bush’s inner circle was identical with Pentagon’s ultimate insiders and neoconservative hawks. Obama talked against the military and security complex but, eventually, became its loyal cheerleader. Trump fought efforts to kill the reset of Russia relations – until the appointment of the special counsel.

The Wolfowitz doctrine has prevailed – against all postwar US presidents.

The original version was released by The Manila Times on January 8, 2018.

Featured Image: President George W. Bush, Defense Secretary Donald Rumsfeld, and Deputy Secretary Wolfowitz in March 2003.

Go to top

About the Author

Dr. Dan Steinbock is Guest Fellow of Shanghai Institutes for International Studies (SIIS), see http://en.siis.org.cn/. The commentary is part of his SIIS project “China in the Era of Economic Uncertainty and Geopolitical Risk”. For his global advisory activities and other affiliations in the US and Europe, see http://www.differencegroup.net/

Chinese Economy in 2018 and Beyond

By Dan Steinbock

In the coming years, China shall aim at high-quality development, while seeking to forestall financial and international risks.

The recent Central Economic Work Conference marked a historical point in China’s economic development. After Mao’s struggle for the mainland’s sovereignty, and Deng’s economic reforms and opening-up, President Xi’s team seeks complete much of the transition to post-industrial society by the early 2020s.

What does it all mean for Chinese economy in 2018?

New Economic Guidelines at Home

A “moderately prosperous society” will become the reality as China’s growth is likely to remain at 6.8-6.3 percent until the end of the decade. “High-speed” growth, which was typical to intensive industrialisation, is now morphing into “high-quality” growth. Due to China’s huge size, the repercussions will reverberate around the world.

China’s rebalancing from exports and investment to consumption and innovation is likely to be completed around 2030. Meanwhile, per capita incomes are expected to double by 2020. Xi’s Chinese dream is predicated on greater economic focus on quality and equality of development.

Investments in social equity mean less uneven coverage of pension and health care insurance nationwide, better public services, rejuvenation of rural areas, scaling of farming operations, increased spending on high school education and vocational training, affordable housing and extended rural land leases – and an aggressive push to eradicate poverty in China.

A key aspect of the shift is Beijing’s expansive goal to restore blue skies over the mainland by cutting pollutants dramatically by 2020, coupled with efforts to attract investors to put substantial funds into environmental rehabilitation.

The new stress on environmental protection means new technologies in green manufacturing and clean energy; cleaning up air, water and soil pollution; developing green finance; emissions-reduction per targets; and tighter environmental rules.

Forestalling Financial Risks

While the Fed’s Ben Bernanke initiated US central bank’s exit from quantitative easing, Janet Yellen has tightened monetary policies, which Jerome Powell is likely to sustain starting in February 2018. As the European Central Bank is likely to gradually follow in the footprints, monetary tightening will spread.

Chinese policymakers seek to maintain a proactive fiscal and a neutral monetary policy stance, ruling out major stimulus packages and monetary easing. Yet, the People’s Bank of China (PBOC) can rely on Chinese growth to continue 3-4 times faster than in most other major economies.

China’s leverage is significantly higher than that of emerging economies (189% of GDP). But unlike them, China is transitioning to a post-industrial society.

In the coming year, policymakers seek to keep the yuan’s exchange rate basically stable. For years, the currency’s internationalisation was pushed hard in the world stage. After market volatility in 2015, the progress has been slower but more solid. In turn, the gold-backed petro-yuan is likely to bring substantial institutional changes.

While the Chinese stock market experienced a slight correction recently, the status quo is now more stable than in 2015. The PBOC will take an active stance in managing financial-market risks through macro-prudential measures, rather than with policy rate tools. In 2018, it is likely to maintain a broadly neutral stance. Currently, the benchmark lending rate remains 4.35%.

With moderate tightening, inflation pressure has been subdued to less than 2% and growth is steady, probably around 6.8% by the year-end.

Recently, the International Monetary Fund (IMF) noted that China’s credit is high by international levels. The mainland’s total social debt is almost 270% as percentage of the GDP. Yet, despite continued absolute rise, credit-taking is decelerating and the government’s effort to deleverage corporates has started to bite.

Today, China’s leverage is significantly higher than that of emerging economies (189% of GDP). But unlike them, China is transitioning to a post-industrial society. Moreover, advanced economies’ leverage (268% of GDP) exceeds that of China, which is implementing structural reforms that major advanced countries continue to delay.

International Risks

In addition to economic and financial threats, the coming months will introduce new unilateral “America First” pressures. Following US-Chinese friction on intellectual property, the US Commerce Department has launched a trade investigation into Chinese exports of sheet aluminum to the US.

Relying on its multilateral and new “major-country diplomacy,” China’s international statecraft complements its domestic economic policies.

The Trump administration will pursue a more aggressive trade agenda in 2018, while its corporate tax reform, which is likely to penalise the Republicans in mid-term elections, has significant trade implications as well. Most recently, the Trump administration’s new security strategy named China as a competitive rival.

In contrast, China is fostering inclusive multilateralism in its economic, security and trade policies, while the One Belt One Road initiative is proceeding faster than expected. The huge infrastructure is estimated at $4 trillion to $8 trillion over time, which is about 30-60 times the cost of the Marshall Plan at the turn of the 1950s.

Relying on its multilateral and new “major-country diplomacy”, China’s international statecraft complements its domestic economic policies. But it must navigate in the “new normal” – a high-risk international environment in which, ironically, America is now the greatest risk in the global economy.

The original commentary was published by China Daily on December 25, 2017.

Go to top

About the Author

Dr. Dan Steinbock is Guest Fellow of Shanghai Institutes for International Studies (SIIS), see http://en.siis.org.cn/. The commentary is part of his SIIS project “China in the Era of Economic Uncertainty and Geopolitical Risk”. For his global advisory activities and other affiliations in the US and Europe, see http://www.differencegroup.net/

China’s One Belt, One Road Initiative Promotes China Over US

OBOR

By Sara Hsu

China’s One Belt One Road initiative is vast and promises to greatly expand China’s soft power in Asia, Europe, and Africa by creating much-needed infrastructure. The US stance on OBOR, however, is unclear, and the lack of a clear stance on OBOR, China, and Asia in general, will ensure a reduced role for the US in the region.

Introduction

China’s expansive One Belt One Road initiative stretches across the continents of Asia, Europe, and Africa and promises to bring a range of infrastructure to numerous developing countries, potentially covering half of the world. The purpose of the project is to engage the nation abroad. China’s Ministry of Foreign Affairs aims specifically to boost intergovernmental communication to promote regional cooperation, coordinate infrastructure plans to ensure connection of infrastructure networks, encourage soft infrastructure development, and improve human connections through international exchanges.1

This is a massive undertaking, and many foreign countries have chosen to participate in order to benefit from infrastructure investment directly or indirectly, despite protests in some areas against environmental and human rights violations. The US position on OBOR, however, is unclear, and a lack of a clear stance has left the US looking on helplessly at the sidelines. This represents a more general failure of US foreign policy in the Asian region.

OBOR Benefits China

Focus on infrastructure allows China to employ its construction firms abroad and generate investment opportunities, both for itself and for other countries. Excess capacity in cement and steel enterprises can be used to provide materials for OBOR projects. OBOR will also help China gain access to trade with less developed countries by reducing trade costs due to improved transportation networks and enhanced trade agreements between nations.

Politically, the project strengthens China’s soft power abroad, boosting China’s stature as a global power. China earns political points for providing assistance to poor countries. The deliverables specified during China’s May 2017 Belt and Road Forum provide an intense work agenda for China, but also promise to massively bolster China’s involvement in Asia and beyond. These include: coordinating development strategies and infrastructure development, expanding industrialisation and trade, increasing financial cooperation, and focussing on people to people exchange.2 All of these items require negotiations with neighbouring governments, understandings based on mutual respect and benefits.

To some, the mutual benefits are clear. China has noted that increased cooperation with Qatar in OBOR can boost Qatar’s National Vision 2030.3 Lao officials have celebrated the fact that OBOR will cause their country to transform from a “land-locked country” into a “land-linked country”.4 Malaysia released a report in October stating that OBOR would create benefits for all participating countries, including Malaysia.5 In addition, Russian President Vladimir Putin stated in June that the OBOR will benefit both Russia and China.6

…Despite Criticisms Regarding Risk and Rights Violations

China’s state owned enterprises have participated in 1,700 OBOR projects, a staggering number that represents construction of highways, railways, dams, and more.7 As I have discussed elsewhere, it seems unlikely that all of these projects have undergone sufficient due diligence, and they face potential risks of failure over time.8

It also bears mentioning that OBOR appears to be carried out on Chinese terms, with relatively low levels of transparency and lack of specification regarding human rights or environmental considerations. This has gotten China into trouble at times, presenting barriers to completing some projects. For example, popular opposition to the creation of a large industrial zone in Sri Lanka, due to potential land losses, has stalled China’s construction in the area. Protests in Pakistan’s Gilgit-Baltistan broke out during the OBOR summit in Beijing to reject Chinese imperialism, or military occupation of Pakistan.9 Protests have also taken place in Nicaragua against China’s plans to build a second canal, due to the threat of pollution and land seizures.

Despite these caveats, many of the projects will succeed, and ones that do fail may stay afloat for years before they collapse. This will allow China to retain its power abroad for a long time. To date, there has not been a great backlash to China’s rights transgressions. It seems that countries with poor governance records have even welcomed China’s impartial stance toward investing in their economies. As a matter of course, China does not attempt to reprimand countries for human rights and governance abuses. Russia, Iran and Turkey, all authoritarian (or quasi-authoritarian) regimes, have embraced China’s aspirations abroad.

US Muddled on OBOR

The US stance on OBOR under the Trump administration is unclear. While President Trump agreed in April to send a delegate to the OBOR forum held in Beijing this past May, US Secretary of Defense James Mattis came out strongly against the OBOR initiative in October due to its operations in disputed territories. Secretary Mattis stated during a Congressional hearing that “in a globalised world, there are many belts and many roads, and no one nation should put itself into a position of dictating one belt, one road.”10 In response, China stated that it has followed “reasonable and transparent” investment rules.11

American companies are quite in favour of contributing to OBOR, and they often have a better technological advantage over Chinese firms.

American companies are quite in favour of contributing to OBOR, and they often have a better technological advantage over Chinese firms. General Electric (GE) and Honeywell International, for example, are getting involved in selling equipment for OBOR designated projects. GE made $2.3 billion in equipment sales in 2016 for projects along OBOR. Honeywell has organised a sales and marketing team called “East to Rest” just to serve Chinese firms working abroad. Opportunities to provide integrated services for infrastructure projects can boost global sales.12

While the Obama administration never explicitly opposed the OBOR or OBOR-associated institutions, there was little said about directly favouring OBOR projects. In fact, the Obama administration revealed itself to be concerned about the the Asian Infrastructure Investment Bank, which aimed to support OBOR projects. The major complaints were that transparency and good governance may not be a central features of the bank. Reportedly, some American officials even quietly lobbied against the development bank at the time of its proposal.13

The US also proposed a policy very similar to the OBOR policy before OBOR was released. In 2011, the US developed its own New Silk Road policy, which focussed on maintaining stability in Central Asia after US and NATO troops withdrew from Afghanistan. The policy focussed on improving trade between India and Pakistan to Central Asia through Afghanistan by promoting infrastructure construction, with the aim of checking the power of Russia and China.14 In both its regional emphasis and its political orientation, the New Silk Road differed from that of OBOR. However, the US did not put much weight behind its program in the end, allowing China’s silk road proposal to overshadow its concept.

US Stance on OBOR Represents Greater Weakness in Foreign Policy

President Trump has failed to devise a clearly defined position toward Asia and has even failed to grasp the importance of existing protocol, such as the One China policy.

The US stance on OBOR is representative of a greater weakness in foreign policy in the Asian region. President Trump has failed to devise a clearly defined position toward Asia and has even failed to grasp the importance of existing protocol, such as the One China policy. Trump’s childish threats toward North Korea with regard to its nuclear programme and to China and South Korea in terms of trade have worsened relations in the region while raising the spectre of an American economic or military attack.

This can be contrasted to former President Obama’s stance on Asia overall. Obama refocussed US attention from Europe to Asia in a “pivot to Asia”. This policy was often construed to mean that the US would increase activity in the Asian region in order to counterbalance China’s importance in the region using both soft and hard power, via trade agreements such as the Trans Pacific Partnership and military deployments.

Conclusion

The absence of an Asia or China policy under President Trump is evident in the administration’s lack of clear position on OBOR. This deficiency only serves to highlight China’s potential gains from the expansive programme, and will allow for the eastern nation to increase economic and political power.

Go to top

About the Author

Sara Hsu is an Associate Professor of Economics at the State University of New York at New Paltz, and have published over six books and fifteen journal articles on the Chinese economy and financial sector. Hsu is a Forbes contributor and a frequent guest on CGTN.

References

1. National Development and Reform Commission, Ministry of Foreign Affairs, and Ministry of Commerce of the People’s Republic of China. 2015. “Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road”. http://en.ndrc.gov.cn/newsrelease/201503/t20150330_669367.html, March 28.
2. Xinhua. 2017. Full text: List of deliverables of Belt and Road forum. http://news.xinhuanet.com/english/2017-05/15/c_136286376.htm, May 15.
3. Xinhua. 2016. “China takes Qatar key partner for belt and road initiative: FM”. http://news.xinhuanet.com/english/2016-05/11/c_135351700.htm, May 11.
4. Hutt, David. 2017. “Laos is a key link for China’s Obor ambitions”, http://www.atimes.com/article/laos-key-link-chinas-obor-ambitions/, July 15.
5. Xinhua. 2017. “Malaysia says it stands to reap benefits from Belt and Road Initiative”, http://news.xinhuanet.com/english/2017-10/27/c_136710199.htm . October 27.
6. Baumgartner, Pete. 2017. “China’s Massive ‘One Road’ Project Largely Bypasses Russia, But Moscow Still On Board”, https://www.rferl.org/a/russia-china-one-belt-one-road-project-putin-xi/28579849.html, June 26.
7. Wu, Gang. 2017. SOEs Lead Infrastructure Push in 1,700 “Belt and Road” Projects. http://www.caixinglobal.com/2017-05-10/101088332.html, May 9.
8. Hsu, Sara. 2017. China’s New Silk Road Project May Be Too Big To Succeed. https://www.huffingtonpost.com/entry/china-silk-road_us_
5935a553e4b0099e7fae2fd2
9. Agencies. 2017. “As China opens its One Belt One Road summit, anti-CPEC protests erupt in PoK”, https://timesofindia.indiatimes.com/world/pakistan/as-china-opens-its-one-belt-one-road-summit-anti-cpec-protests-erupt-in-pok/articleshow/58675499.cms, May 15.
10. Press Trust of India. 2017. “US Backs India On ‘One Belt One Road’, Says It Crosses ‘Disputed Territory’.” https://www.ndtv.com/world-news/on-belt-and-road-us-backs-india-says-it-crosses-disputed-territory-1758271, October 4.
11. IANS. 2017. “China says it’s not thrusting Belt and Road”, http://economictimes.indiatimes.com/news/international/world-news/china-says-its-not-thrusting-belt-and-road/articleshow/60971921.cms, October 6.
12. Trentmann, Nina. 2017. “Western Firms Bet Big on China’s Billion-Dollar Infrastructure Project”, https://www.wsj.com/articles/western-firms-bet-big-on-chinas-billion-dollar-infrastructure-project-1494790205, May 14.
13. Perlez, Jane. 2014. “U.S. Opposing China’s Answer to World Bank” https://www.nytimes.com/2014/10/10/world/asia/chinas-plan-for-regional-development-bank-runs-into-us-opposition.html?_r=0., October 9.
14. Kim, Younkyoo and Fabio Indeo. 2013. The new great game in Central Asia post 2014: The US “New Silk Road” strategy and Sino-Russian rivalry.  Communist and Post-Communist Studies 46 (2013) 275–286

Eclipse of US Free-Trade Legacy in Americas and Asia Pacific

US Free-Trade Legacy in Americas and Asia Pacific

By Dan Steinbock

Recently, all major US free trade deals in North America, Latin America and Asia Pacific have fallen under fire. As American legacy in free trade is dimming, there is a new opportunity for real free trade in Asia Pacific.

Recently, Canadian Prime Minister Justin Trudeau concluded a visit to China. The joint talks about a free trade pact began over a year ago. As Trudeau left Beijing, Western media headlined “Trudeau leaves China empty-handed”, while Chinese Foreign Ministry said that “both China and Canada showed willingness to negotiate and sign a free trade agreement”.

In reality, the world of free trade is now in the kind of flux that has not been since the post-1945 era.

If the US withdraws from the North American Free Trade Agreement (NAFTA), that would start a six-month legal process before official termination. While President Trump may see this as a negotiating tool to force Canada and Mexico to accept its demands, the latter may use the time to complete trade talks with Brazil and the European Union (EU).

After the fifth round of NAFTA talks ended amid simmering tensions, Canada and Mexico are hedging their bets against a potential NAFTA collapse by pushing for deals with new partners, particularly with China and other Asian countries.

The Rise and Fall of NAFTA

NAFTA is not just another free-trade agreement. It is America’s post-Cold War blueprint for other free traded agreements (FTAs).

NAFTA is not just another free-trade agreement. It is America’s post-Cold War blueprint for other free traded agreements (FTAs). It came into force in 1994, amid the globalisation boom. Despite fanfares, the key leaders faced a brutal aftermath.

President Bill Clinton’s alleged abuses of public power led to a special counsel in the 1990s. After Prime Minister Brian Mulroney was blamed for fraud by the Canadian Justice Department, he won an out-of-court settlement but reportedly neglected to inform the courts about payments that could have affected the settlement. Mexico’s President Carlos Salinas was appointed WTO’s Director-General and left Mexico as his brothers were prosecuted in a multimillion dollar fraud case; his older brother, a figure in cocaine cartel trade, was convicted for murder; the younger brother was found dead with a plastic bag strapped around his head.

In public, NAFTA was promoted as a receipt for regional success in the US, Canada, and Mexico. Yet, its record has proved mixed. While the agreement has benefited consumers in three countries, it has also contributed to investment outflows, unemployment and offshoring.

Recently, US officials have sought to subdue NAFTA tensions by extending the timetable for renegotiations but that has just poured oil on the simmering fire. In Mexico, tight elections in mid-2018 will complicate the NAFTA talks; in Canada, conservatives are positioning for 2019 elections. 

The Rise and Fall of FTAA

Yet, in the 1990s, Washington’s trade bureaucrats embraced the NAFTA as a blueprint that could be expanded and extended elsewhere. The proposed Free Trade Agreement of the Americas (FTAA) was the first case in point.

Venezuela’s Hugo Chavez condemned the FTAA as a “tool of imperialism”. However, Latin America’s leaders, including then presidents of Brazil, Luiz Inácio Lula da Silva, and Argentina, Néstor Kirchner, did not oppose the FTAA but demanded the pact to eliminate US agriculture subsidies, effective access to foreign (read: US) markets and consideration towards their member states’ needs.

In contrast, Washington sought to extend NAFTA with non-trade-related concessions through the FTAA. Instead of opening South America to free trade, the FTAA split the region into two blocs, as President Lula had predicted.

Historically, the TPP was déjà vu all over again. Not only did it split Asia Pacific; it also divided the United States from within.

The Rise and Fall of TPP

As he had pledged in the campaign trail, Trump killed the Trans-Pacific Partnership (TPP), President Obama’s legacy deal, during his first day in office. But the move did not come out of the blue.

Through the Cold War, most Americans still believed in international engagements, which had bipartisan support in Washington. After the Cold War, Americans have grown more skeptical, even hostile to international commitments.

Historically, the TPP originated from a 2005 free trade deal among Brunei, Chile, New Zealand and Singapore. Its original version had more economic, transparent and inclusive foundations. After 2010, Washington began to lead talks for a significantly expanded FTA, which reflected US interests in Asia and Americas. So the talks were assigned to the new US Trade Representative Michael Froman, a former security and Soviet Union expert.

The new TPP was an integral part of Obama’s “pivot to Asia”. That’s why these negotiations were more geopolitical, secretive and exclusive by nature and China was excluded from the pact.

After the US 2016 election, some TPP partners began to push a revised TPP without the US. In the process, many of them – including Japan – began to hedge between a revised TPP, a bilateral free trade deal with the US, and China-led talks at a Regional Comprehensive Economic Partnership (RCEP).

In November, 11 countries announced their commitment to resurrecting the TPP, without the US. But a new deal would have to be signed and ratified by each country.

Toward Real Free Trade in Asia Pacific

What Asia Pacific really needs is an inclusive free trade agreement. No sustainable free trade pact in the region can ignore either China or the United States, or both.

In fact, the idea of free trade in Asia Pacific has been around since at least 1966 when Japanese economist Kiyoshi Kojima advocated a Pacific Free Trade agreement. Practical measures ensued during the 1994 meeting in Indonesia, when APEC leaders opted for free and open trade and investment in Asia Pacific.

In 2006, C. Fred Bergsten, then chief of the influential US think-tank Peterson Institute for International Economics, made a forceful statement in favour of the Free Trade Area of the Asia Pacific (FTAAP). If the agreement could be achieved, he argued, it would represent the largest single liberalisation in history.

Oddly enough, the Obama Administration set the FTAAP aside to focus on the geopolitical TPP talks.

What Asia Pacific really needs is an inclusive free trade agreement. No sustainable free trade pact in the region can ignore either China or the United States, or both. Perhaps that’s why China now seeks to couple its One Road One Belt initiative with a renewed effort at the FTAAP that would be broader and more inclusive than all past efforts.

The original, shorter commentary was published by South China Morning Post (Hong Kong) on December 18, 2017. 

Go to top

About the Author

Dr. Dan Steinbock is Guest Fellow of Shanghai Institutes for International Studies (SIIS), see http://en.siis.org.cn/. The commentary is part of his SIIS project “China in the Era of Economic Uncertainty and Geopolitical Risk”. For his global advisory activities and other affiliations in the US and Europe, see http://www.differencegroup.net/

Runaway Train Towards Full Digitisation of Money and Labour

By Peter Koenig

The other day I was in a shopping mall looking for an ATM to get some cash. There was no ATM. A week ago, there was still a branch office of a local bank – no more, gone. A Starbucks will replace the space left empty by the bank. I asked around – there will be no more cash automats in this mall – and this pattern is repeated over and over throughout Switzerland and throughout western Europe. Cash machines gradually but ever so faster disappear, not only from shopping malls, also from street corners. Will Switzerland become the first country fully running on digital money?

This new cashless money model is progressively but brutally introduced to the Swiss and Europeans at large – as they are not told what’s really happening behind the scene. If anything, the populace is being told that paying will become much easier. You just swipe your card – and bingo. No more signatures, no more looking for cash machines – your bank account is directly charged for whatever small or large amount you are spending. And naturally and gradually a ‘small fee’ will be introduced by the banks. And you are powerless, as a cash alternative will have been wiped out.

The upwards limit of how much you may charge onto your bank account is mainly set by yourself, as long as it doesn’t exceed the banks tolerance. But the banks’ tolerance is generous. If you exceed your credit, the balance on your account quietly slides into the red and at the end of the month you pay a hefty interest; or interest on unpaid interest – and so on. And that even though interbank interest rates are at a historic low. The Swiss Central Bank’s interest to banks, for example, is even negative; one of the few central banks in the world with negative interest, others include Japan and Denmark.

When I talked recently to the manager of a Geneva bank, he said, it’s getting much worse. “We are already closing all bank tellers, and so are most of the other banks.” Which means staff layoffs – which of course makes it only selectively to the news. Bank employees and managers must pass an exam with the Swiss banking commission, for which they must study hundreds of extra hours within a few months to pass a test – usually planned for weekends, so as not to infringe on the banks’ business hours. You got two chances to pass. If you fail you are out, joining the ranks of the unemployed. The trend is similar throughout Europe. The manager didn’t reveal the topic and reason behind the “retraining” – but it became obvious from the ensuing conversation that it had to do with the ‘cashless overtake’ of people by the banks. These are my words, but he, an insider, was as concerned as I, if not more.

Surveillance is everywhere. Now, not only our phone calls and e-mails are spied on, but our bank accounts are too. And what’s worse, with a cashless economy, our accounts are vulnerable to be invaded and robbed by the state, by thieves, by the police, by the tax authority, by any kind of authority – and, of course, by the very banks that have had your trust for all your life. Remember the “bail-in”, the infamous “hair-cut”, first tested in early 2013 in Cyprus? – Bail-ins will become common practice for any bank that has abused its greed for profit and would go belly-up, if there wouldn’t be all those deposits from customers. Even shareholders are not safe. This has been quietly decided some two years ago, both in the US and also by the non-elected white-collar mafia, the European Commission – EC.

The point is, “banks über alles” (“banks above everything”, following Hitler-Nazis’ battle cry “Deutschland Über Alles”). And which country would be better suited to introduce ‘cashless living’ than Switzerland, the epicentre – along with Wall Street – of international Zion-banking. Bank’s will call the shots in the future, on your personal economy and that of the state. They are globalised, following the same principles of deregulation worldwide. They are in collusion with globalised corporations. They will decide whether you eat or become enslaved. They are one of the tree major weapons of the 0.1 % to beat the 99.9% into submission. The other two at the service of the master hegemon’s Full Spectrum Dominance drive, are the war- and security industry and the ever more brazen propaganda lie-machine. Banking deregulation has become another little-propagated rule of the World Trade Organization (WTO). Countries who want to join WTO, must deregulate their banking sector, prying it open for the globalised money-sharks, the Zion-controlled banking conglomerates.

Retrenchment of personnel in the banking employment market is increasing. The news only selectively reports on it, when there are large amounts of jobs being eliminated. Statistics lie everywhere, in the EU as well as in Washington. – Why scare people? They will be scared enough, when they are offered jobs at salaries on which they can barely survive. That’s happening already. It used to be a tactic applied for developing countries: Keep them enslaved by debt and low pay, so they don’t have time and energy to take to the streets to protest – they have to look for food and work, whatever menial jobs they can get, to feed their families. It’s now hitting Europe, the West in general. Some countries way more than Switzerland.

Cashless trials are going on elsewhere, especially in Nordic countries, where selected department stores and supermarkets do no longer take cash. Another monstrous trial has been carried out in India a year ago, in the last quarter of 2016, where from one day to another 80% of the most popular money bills were eliminated, and could only be exchanged for new bills by banks and through bank accounts. And this in an almost pure cash country, where half the population has no bank account, and where remote rural areas have no banks. People were lied to so that the sudden introduction had maximum effect.

It caused massive famine and thousands of people died, as they had suddenly no acceptable cash to buy food – all instigated by the USAID Project “Catalyst”, in connivance with the Indian rulers and central bank. It was a trial. It was a disaster. If it works in India with 1.3 billion people, two thirds of whom live in rural areas and most of them have no bank account, the scam could be applied in any developing country – see also India – India, Death by Demonetization: “Financial Genocide”, The Crime of The Century.1

What is going on in Switzerland is a trial with the high end of populations. How is the upper crust taking to such radical changes in our daily monetary routine? – So far not many protests have been noticed. There is a weak referendum being launched by a group of people who want the Swiss Central Bank be the only institution that can make money, like in the “olden days”. Though a very respectable idea, the referendum has no chance in today’s banking and debt-finance environment, where youth is being indoctrinated with the idea that swiping your card in front of an electronic eye is cool. Today, most money is debt-money, made by private banks, like elsewhere in Europe and the US. Worldwide banking deregulation, initiated by the Clinton Administration in the 1990s – today a rule for any member of the World Trade Organization (WTO) – has made this all possible.

Digitisation and robotisation is just beginning. Staffed check-out counters in supermarkets are disappearing; most of them are converted into automatic check-outs – and that happened within the last year. – Where are the employees gone? – I asked an attendant who helped the customers through the self-checkout. “They joined the ranks of unemployed,” she said with a sad face, having lost several of her colleagues. “It will hit me too, as soon as they don’t need me anymore to show the customers on how to auto-pay.”

Bitcoins

Digitisation also includes the cryptocurrencies, the blockchain moneys floating around – of which the most famous one is Bitcoin. It brings digitisation of money to an apex. The system is complex and seems to lend itself only to “experts”. Cryptocurrencies are fiat money, based on nothing, not even on gold. Cryptos are electronic, invisible and highly, but highly speculative, an invitation for gangsters and fraudsters. It looks as if cryptocurrencies were designed for crooks and speculators.

Bitcoin was allegedly invented by Satoshi Nakamoto which could be a pseudonym of a man or a group of people, suspected to live in the US. “Nakamoto’s” identity is believed to be commonwealth origin, due to the vocabulary used in his writings. One of his close associates is purportedly a Swiss coder, who is also an active member of the cryptocurrency community. He is said to have graphed the time stamp of each of Nakamoto’s more than 500 bitcoin forum posts. Such“‘forum posts” exist in the thousands, worldwide. They form an elaborate network based on algorithms.

Cryptos are electronic, invisible and highly, but highly speculative, an invitation for gangsters and fraudsters. It looks as if cryptocurrencies were designed for crooks and speculators.

Bitcoin was formally created in January 2009 with a fix amount of 21 million “coins”, of which more than half are already in circulation, or “mined” as the jargon goes, and 1 million, or about 4.75% (of the total) can be traced to Nakamoto. This, based on the current market value corresponds to close to US$15 billion. Today’s overall Bitcoin market cap is more than US$ 315 billion. The market is highly volatile. Drastic daily fluctuations are common, especially within the last 12 months. If one of the major Bitcoin holders, like Nakamoto, would capitalise his profit by selling a big portion of his holdings, the Bitcoin price would be in free fall, functioning pretty similar to the regular stock exchange.

On 24 August 2010, when Bitcoin was first traded, its value was US$ 0.06. On 26 December 2017, the coin was worth US$ 15,770, an increase of more than 250,000%. In the last twelve months, its value increased from about US$ 800 in December 2016 to a peak of close to US$ 20,000 in mid-December 2017, an increase of nearly 2,500 %. However, in the last 7 days, after several ups and downs, the price has dropped by about US$ 680, i.e. by more about 4%, and the trend – is uncertain. Perhaps a sign of quick profit-taking? This all shows how unstable this cryptocurrency is, apparently much more so than trading corporate shares on the stock market. And certainly not apt as a every-day currency base.

The number of cryptocurrencies available over the internet as of 27 November 2017 is above 1300 and growing. A new cryptocurrency can be created at any time and by anybody. By market capitalisation, Bitcoin is presently the largest blockchain network (database network, storing data in different publicly verifiable places), followed by Ethereum, Bitcoin Cash, Ripple and Litecoin.

Bitcoin may be the next bubble, bringing down a parallel economy which has already its fingers clawing into our regular western economy. Cryptocurrencies are officially forbidden in Russia and China, though stopping cryptocurrency dealings by individuals is hardly possible. They do not touch the traditional banking system. That’s why major banks hate them. They circumvent the banking suckers, prevent them from making ever higher profits from horrendous commissions, against which the people at large are powerless.

Here is Bitcoin’s positive side. It escapes bank and state controls. If countries’ economies were run on Bitcoins or another cryptocurrency, they would escape US sanctions which function only because western currencies are foster-children of the US-dollar, hence, subject to the dollar hegemony; meaning all international transactions have to pass through a US bank. A typical case is ‘banking blockades’, when Washington decides to stop all international transactions of a country until it submits to the wishes of the empire. It is blackmail; totally illegal, but unless there is a monetary alternative, the (western) world is subject to this system.

Argentina is a case in point. Buenos Aires was forced by a New York judge in June 2014 to pay a New York based Vulture Fund US$1.6 billion, an illegal ruling according to a UN Resolution. Argentina refused to pay, so the judge, interfering in a sovereign nation, blocked more than US$500 million of Argentina’s debt payment to creditors, bringing the country to the brink of a second bankruptcy in 13 years. Eventually, neoliberal Macri negotiated a deal with the Vultures and made a payment in excess of US$ 400 million.

This US blackmail would not have been possible had Argentina been able to make its foreign transactions in Bitcoins or another cryptocurrency. Venezuela has created the “petro”, a hydrocarbon and gold based national cryptocurrency to escape dollar-caused inflation and for some of its foreign transactions, thereby also escaping the sanctions stranglehold of Washington. Had Greek and Cyprus citizens had a cryptocurrency alternative to the euro, they would not have been subject to the cash control imposed by the European Central Bank.

On the other hand, funding of terror organisations, like ISIS, cannot be disrupted, if the terror group deals in cryptocurrencies. – This shows, for good or for bad, Bitcoins, or cryptocurrencies are for now unique in resisting censure and blackmail, or any kind of authoritarian outside interference in electronic money transactions.

Cashless Living

For the latter we must wake up to see the propaganda fraud going on before our eyes, and to resist the robot and electronic money onslaught being unleashed on us.

If Switzerland accepts the change to digital money, a country where until relatively recently most people went to pay their monthly bills in cash to the nearest post office – then we, in the western world, are on a fast track to total enslavement by the financial institutions. It goes, of course, hand-in-hand with the rest of systematic and ever faster advancing oppression and robotisation of the 99.9% by the 0.1%.

We are currently at cross-roads, where we still can either decide to follow the discourse of a new electronic monetary era, with ever less to say by “We, the People” about the product of our work, our money; or whether, We, the People, will resist a banking/finance system that has full control over our financial resources, and which can literally starve us into submission or death, if we don’t behave. In order to resist we need an alternative monetary system or monetary network, away from the dollar-euro hegemony – and cryptocurrencies, as structured today, are no alternative.

All the more important is the ascent of another economy, another payment and transfer scheme which already exists in the East, the Chinese International Payment System (CIPS), effectively a replacement of SWIFT, totally privately run and linked to the US-dollar and US banks. The world needs a multipolar currency system, based on the real economic output of a country or society, as is the case in China and Russia, not one based on fiat money as is the current western economy.

Will Switzerland, the stronghold of world finance, along with New York, London and Hong Kong, resist the temptation of increased profit, power and control, offered by digital money? – We, the People, have still the chance to decide either for continuing rotting in a fraud economy, based on wars and greed – for which digital money, exacerbated by cryptocurrencies, is a new tool for a new maximising profit bonanza on the back of the common people; or do we opt for an honest future and for a life that leaves us free to take sovereign political and monetary decisions in a full cash society. For the latter we must wake up to see the propaganda fraud going on before our eyes, and to resist the robot and electronic money onslaught being unleashed on us.

Go to top

About the Author

koenig-webPeter Koenig is an economist and geopolitical analyst. He is also a former World Bank staff and worked extensively around the world in the fields of environment and water resources. He lectures at universities in the US, Europe and South America. He writes regularly for Global Research, ICH, RT, Sputnik, PressTV, The 4th Media, TeleSUR, TruePublica, The Vineyard of The Saker Blog, and other internet sites. He is the author of Implosion – An Economic Thriller about War, Environmental Destruction and Corporate Greed – fiction based on facts and on 30 years of World Bank experience around the globe. He is also a co-author of The World Order and Revolution! – Essays from the Resistance.

Reference

1. http://www.globalresearch.ca/india-death-by-demonetization-financial-genocide-the-crime-of-the-century/5569859

Jerusalem – The Straw that Breaks the Empire’s Back?

By Peter Koenig

 

When President Trump on 6 December 2017 declared unilaterally Jerusalem as the capital of Israel to where the US Embassy shall relocate, he violated UN Resolutions, international law, common sense and went against all diplomatic efforts to eventually bring peace to the region, not to speak about 130 countries that have already voiced opposition to such a decision. And this, before the Peace Process is coming to an end, at which point the 1993 Oslo Peace Accords would play out. They are also called the Road Map for Peace, between Palestine and Israel, which foresees a two-state solution and accordingly a mutual decision on Jerusalem becoming the capital city for both Palestine and Israel. These Oslo Peace Accords are still valid today.

But Mr. Trump may not have a clue that such a Peace Accord even exists. And his handlers obviously had no interest of telling him. – And even if they did, it would make no difference, because the exceptional nation has no scruples demolishing any agreements of the past, regardless whether or not it – the US of A – were party to the shaping of them. – See also the Iranian Nuclear Deal.

By the same token, Washington does not give a hoot about international law and UN Resolutions. We are talking about the only and perfect rogue state the world has known in the past two centuries, by far surpassing, actually without any comparison with the western customarily accused villains, like Zimbabwe, North Korea, Iran, Syria, Venezuela, Cuba – and all those that refuse to bend to the Chief-Rogue-State, the United States of America.

In fact, what Trump has done, was just confirming what previous US Administrations had already as an objective, namely following the so-called “Jerusalem Embassy Act of 1995“, with which the US Congress already 20 years ago, requested and prepared this step by legislation that says, “Since 1950, Jerusalem is the Capital of the State of Israel…”. Never mind and, of course not reported by the mainstream media, that immediately after promising the US Embassy would be moved to Jerusalem, Trump signed a “waiver” postponing the move indefinitely, or until the international situation becomes “clear(er)”. – Who does the US Congress think they are – God the Almighty? To decide over the “Holy City”, Jerusalem, the historic centre of the three-religion monotheist culture of 5,000 years of Judo-Christianism, also incorporating Islam, is an act of arrogance without comparison.

This insensitive Trump decision or affirmation at this point in time – another one in his basket of disasters – brought everything else but peace to the region, and especially to Palestine. It caused unrest, angry demonstrations from people who are basically fighting with their bare hands; protests which were immediately oppressed with firepower and violence by the Israeli military and police force, killing people in the Israel imposed ghetto of Gaza and the West Bank – i.e. in Palestine, what should become an independent state.

This insensitive Trump decision or affirmation at this point in time – another one in his basket of disasters – brought everything else but peace to the region, and especially to Palestine.

Instead of bringing peace, Trump killed the aspiration of peace, he de facto killed the notion of a two-state solution – and he effectively isolated the US from literally the rest of the world. Was this a bold provocation inspired by Trump’s Zionist masters, a trial balloon to find out how much of impunity the world would tolerate?

At no time was even mentioned that Jerusalem, if anything, might also be the capital of Palestine. The Motherland of Israel, let’s not forget, Palestine, was ignored. Palestine was provoked into protests, just to be brutally suffocated by the Israeli defense Forces (IDF). They do this with sadistic pleasure, like killing helpless flies. All this prompted by the criminal and irresponsible behaviour of the President of the United States, the exceptional Nation – or rather his invisible handlers behind the throne.

But the propaganda mantra must go on – the lie that declaring Jerusalem the capital of Israel was good for the Middle East, was good for peace, was and still is repeated over and over again, like a mantra, tras-mantra, tras-mantra – by Trump and his mannequins, his foreign affair puppets, Rex Tillerson and Nikki Haley, who is masquerading as Washington’s UN Ambassador, repeating over and over again, the same lie, the same lie, the same lie, in the hope, as the common saying goes after Goebbels, Hitler’s Propaganda Minister, if repeated enough, the lie becomes the truth. Do these clowns really believe that if a world renown repeat-liar keeps repeat-lying the globes populace believes that the repeat-lie becomes the truth?

The people at large have moved forward towards awakening since the horrendous murderous lies about Iraq with weapons of mass destruction that weren’t; about Gaddafi horrors committed to his people, which he didn’t, to the contrary, he provided them with free education, health services and cutting edge medical facilities, with free infrastructure and a broad social safety net; or UN-proven lies about Bashar Al-Assad’s poison gas used against his own people; the lies about Iran’s nuclear program that never was; the lies about Russia’s meddling in Ukraine, when it is now amply proven that the Maidan massacre was planned and carried out via the US Embassy in Kiev and through US and NATO military and paid mercenaries; the lies about the US and NATO fighting against ISIS which Washington created – and the list of lies go on – endlessly.

The entire vassal state of the European Union, country after country – led by the three “Ms”, Germany’s Merkel, France’s Macron, and the UK’s May – have said they would not go along with Trump’s decision and moving their Embassies to Jerusalem. Bravo! – Will this decision last, or will there be some high-power arm-twisting by Washington? – Is Washington still able to do arm-twisting, economic sanctions? Haven’t they noticed yet, that the west, even the hitherto puppet West, is gradually but surely moving away from the Atlantic Alliance towards the East. Probably for purely selfish economic and financial reasons, though some western politicians may look deeper and see the light, what I call, the Future is in the East.

What is also mazing though, is that nobody seems to even question the basics – the right of the self-styled emperor Trump, the typical emperor without cloths – intervening with the decision of another nation’s capital city. Of course, we know that Trump’s buddy and family friend, Bibi Netanyahu, holds and/or twists arms (smilingly) with the Donald on Jerusalem through the infamous family relations of the two warrying aggressors and through the seemingly unbeatable Zion-power the western world is being subjected to.

Trump, with this unwise decision, may have brought Jerusalem back to the 12th Century, the ages of the Crusades, when in 1187, on behalf of the Muslim Ayyubids Dynasty, Sultan Saladin, a Sunni Muslim, of Kurdish origins, besieged and eventually re-conquered the so-called Christian Kingdom of Heaven, invaded and stolen by the “Christian” emperors of Rome two-hundred years earlier.

Perhaps Mr. Trump nilly-willy has started a new Arab Crusade against the artificially imposed Kingdom of Israel, artificially implanted in the land of Palestine, implanted by the Zionists who used the power of the British Empire which at that time was colonising Palestine, to corrupt the freshly created UN system in 1948 to cut up and destroy Palestine – see the Balfour Declaration, below. The British Foreign Secretary, Arthur Balfour, wrote on 2nd November 1917, hundred years ago, to Lord Rothschild, a leader of the British Jewish community, suggesting the carving up of Palestine the creation of a State of Israel. The “proposal” was to be transmitted to the Zionist Federation of Great Britain and Ireland. Lord Rothschild was co-drafter of the letter. The text of the declaration was made official by publication in the media on 9 November 1917.

 


 

The idea was eventually carried out by a UN Resolution in 1948, bringing about the State of Israel on 14 May 1948, the day Palestine became a non-country and enslaved to Israel.

Behind the Trump strategy lays a broader objective, the creation of a Greater Israel, that would stretch from the Euphrates to the Nile, cutting through Saudi Arabia, absorbing Jordan, a large portion of Syria and most of Egypt’s Sinai Peninsula. This is to make Israel a Middle Eastern super-power, sitting on a huge junk of the sub-continent’s energy wealth and on most of the Middle east’s fresh water reserves, on behalf of the Anglo-Zionist Empire.

It is yet to be seen whether this bold and aggressive move by Trump went a step too far; whether this impunity is the straw that may break the empire’s back.

It is yet to be seen whether this bold and aggressive move by Trump went a step too far; whether this impunity is the straw that may break the empire’s back.

What if nobody – not even the traditional allies – participates in this nefarious endeavour to move their embassies from Tel Avia to Jerusalem?

What if sanctions that Washington undoubtedly may dish out to those who do not obey its orders do no longer work?

What if this Trump lunacy opens the gates to the East even further for all those who have been fed-up with the empire’s financial-, fury-and-fire, and propaganda-crusades to conquer the world; and that this Washington insanity leads them to a new healthier, promising and honest economic system striving towards equality – of which we know already the fundamental bedrock – the multi-trillion New Silk Road, President Xi’s One Belt Initiative?

 

Featured Image: Israeli Prime Minister Benjamin Netanyahu shakes hands with President Donald Trump | AP Photo

Go to top

About the Author

koenig-webPeter Koenig is an economist and geopolitical analyst. He is also a former World Bank staff and worked extensively around the world in the fields of environment and water resources. He lectures at universities in the US, Europe and South America. He writes regularly for Global Research, ICH, RT, Sputnik, PressTV, The 4th Media, TeleSUR, TruePublica, The Vineyard of The Saker Blog, and other internet sites. He is the author of Implosion – An Economic Thriller about War, Environmental Destruction and Corporate Greed – fiction based on facts and on 30 years of World Bank experience around the globe. He is also a co-author of The World Order and Revolution! – Essays from the Resistance.

How To (and Not To) Navigate between US and China 

By Dan Steinbock

The first 18 months of the Duterte government suggest that the effort to recalibrate the Philippines’ ties between the US and China is necessary, viable and vital.

      

In the first half of the 2010s, Manila and Beijing were drifting toward a geopolitical clash. Nevertheless, former President Benigno Aquino III expected continuity to prevail under what he presumed to be the Roxas government.

Similarly, former President Obama anticipated that Hillary Clinton would be the next US president and that she would sustain his legacy in Asia.

But as I argued in the Philippines Institute for Development Studies (PIDS) in February 2016, What if Duterte would beat Roxas and Trump would win in Washington? That, I said, would change the rules of the game.

 

Washington’s Retreat and Return                

After World War II, Manila cultivated close relations with Washington and supported the US through the Cold War, the War on Terror and was a major non-NATO ally.

After World War II, Manila cultivated close relations with Washington and supported the US through the Cold War, the War on Terror and was a major non-NATO ally.

Indeed, in the postwar era, the Philippines was seen as the most likely country to prosper in the region. And yet, during the Marcos decades and the deep ties with the US, the country fell behind the rest of Asia, despite the “People Power Revolution”.  

At the time, China was focussed mainly on its economic reforms and, after joining the World Trade Organization (WTO) in 2001, on its export-led growth. The latter prevailed until the global financial crisis, the Eurozone sovereign credit crisis and the rise of President Xi Jinping’s administration in the early 2010s.

Despite pledges of change, the Aquino era (2010-16) reaped only some benefits of easy catch-up growth and regional integration. Its anti-corruption struggle was not effective, the explosive drugs problem was largely neglected and poverty persisted. Worst of all, it failed to realise the economic potential of the Philippines.

Meanwhile, the Obama administration began its pivot to Asia, including the plan to move the majority of US warships to Asia Pacific by 2020. Unsurprisingly, China made its counter-moves in the region.

So President Aquino and Foreign Minister Albert del Rosario saw bilateral talks with China as futile, tried multilateral approach through the ASEAN and took the dispute to the international court, while opting for a new defence alliance with the US (2014 EDCA), which was followed by the return of the US Navy to Subic Bay.

Erosion of Manila-Beijing Ties

In Beijing, the Philippines came to be seen as US military platform in Southeast Asia, with Vietnam a complement of Japan in East Asia. Washington encouraged rearmament in all three countries. In Japan, that meant the end of the pacifist postwar constitution; in the Philippines and Vietnam, rising military expenditures. In turn, US defence contractors reaped economic rents as tensions in the South China Sea drove up demand for weapons.

According to SIPRI, the US provided 90 percent of Japan’s weapons imports in 2012-16, while the Philippines started a military expansion program and increased arms imports by 426 percent from 2007 through the Aquino era.

The militarisation benefitted the Pentagon and some of its Western allies, but led to friction with China at precisely wrong time. As the Obama administration orchestrated its military pivot to Asia, it was alienating China, which was promoting regional financing by the BRICS New Development Bank, the Asian Infrastructure Investment Bank, and the huge One Belt One Road initiative.

The net effect? When Chinese foreign investment took off hugely in Asia, Philippines was largely bypassed. Instead, as Aquino and Rosario were struggling for what they felt were Manila’s vital sovereign interests in the region, the country grew geopolitically dependent on Washington.

 

Four Scenarios But…

Before the 2016 Philippines election, there was real concern that the country was heading toward a confrontation with China in the South China Sea. Manila’s new defence alliance with Washington added to the distrust.

As Duterte won the election, the US Navy sent its third warship in less than seven months into the waters of the disputed South China Sea. In hindsight, such actions, which were seen as highly provocative in Beijing, probably reinforced Duterte’s determination to recalibrate ties between the US and China. But did he have any viable alternatives?

Before the 2016 Philippines election, there was real concern that the country was heading toward a confrontation with China in the South China Sea. Manila’s new defence alliance with Washington added to the distrust.

Depending on whether China and the Philippines would opt for a cooperative or assertive stance in bilateral relations, I argued that four scenarios cast a long shadow over Southeast Asia’s future at the PIDS and in the Foreign Service Institute soon after Duterte’s electoral triumph.

If Beijing refused cooperation with Manila, it would corner the Duterte government to rely even more on US security assurances. This I portrayed as a regional dead-end scenario.

Conversely, if Beijing would seek cooperation but Manila would take a back step, due to external pressure, the result would be a polarisation scenario. In that case, Manila would have to lean even more on the US, while China might resort to even greater defensive measures. Both countries would lose economically.

In the third scenario, old policies would prevail, which would ensure the failure of bilateral talks, harden attitudes and increase the probability of proxy conflicts in South China Sea. That was the destabilisation scenario – a costly nightmare economically and strategically, and possibly in human lives.

 

… Only One Path to the Future

The only reasonable approach, I argued then (as I did through the Aquino era), would start with a Sino-Philippines bilateral conversation that would lead to a  formal dialogue. The latter could reduce the weight of geopolitics, while supporting mutual gains in economic development. This stabilisation scenario would be the most preferable economic, political and strategic trajectory for Manila, Beijing, the ASEAN and over time for Washington as well.

For the first time in decades, solid growth and economic catch-up may translate to substantial gains in the lives of ordinary Filipinos.

It is also the scenario that the Duterte government opted for, despite the alleged “Goldberg regime change plan” and the associated efforts at destabilisation in the Philippines – the last relic of the Obama pivot.

Despite occasionally tough bilateral rhetoric and disagreements, peace and stability between the US and China, along with thriving bilateral trade and investment, allows greater focus on economic development globally, particularly in broader Asia.

That’s what the Philippines needs – greater infrastructure investment for industrialisation and urbanisation, constitutional changes to ensure foreign investment increases by magnitude, sustained and inclusive economic growth, all of which should foster rising living standards and reduce poverty.

For the first time in decades, solid growth and economic catch-up may translate to substantial gains in the lives of ordinary Filipinos. Of course, the Duterte balancing act won’t be easy. But failure is not an option and the alternatives are worse.

 

The original commentary was published by The Manila Times on December 4, 2017

Featured Image: US President Donald Trump talks with Philippines President Rodrigo Duterte during the gala dinner marking ASEAN’s 50th anniversary in Manila, Philippines, Nov. 12, 2017.

Go to top

About the Author

Dr. Dan Steinbock is Guest Fellow of Shanghai Institutes for International Studies (SIIS), see http://en.siis.org.cn/. The commentary is part of his SIIS project “China in the Era of Economic Uncertainty and Geopolitical Risk”. For his global advisory activities and other affiliations in the US and Europe, see http://www.differencegroup.net/

Telesur: The Real Causes of Deficits and the US Debt

By Jack Rasmus

 

With the Senate and House all but assured to pass the US$4.5 trillion in tax cuts for businesses, investors, and the wealthiest 1 percent households by the end of this week, phases two and three of the Trump-Republican fiscal strategy have begun quickly to take shape.

Phase two is to manoeuvre the inept Democrats in Congress into passing a temporary budget deficit-debt extension in order to allow the tax cuts to be implemented quickly. That’s already a “done deal”.

Phase three is the drumbeat growing to attack social security, Medicare, food stamps, Medicaid, and other “safety net” laws, in order to pay for the deficit created by cutting taxes on the rich. To justify the attack, a whole new set of lies are resurrected and being peddled by the media and pro-business pundits and politicians.

 

Deficits and Debt: Resurrecting Old Lies and Misrepresentations

The government then uses the social security surplus to pay for decades of tax cuts for the rich and corporations and to fund endless war in the middle east.

Nonsense like social security and Medicare will be insolvent by 2030. When in fact social security retirement fund has created a multi-trillion dollar surplus since 1986, which the US government has annually “borrowed”, exchanging the real money in the fund created by the payroll tax and its indexed threshold, for Treasury bonds deposited in the fund. The government then uses the social security surplus to pay for decades of tax cuts for the rich and corporations and to fund endless war in the middle east.

As for Medicare, the real culprit undermining the Medicare part A and B funds has been the decades-long escalating of prices charged by insurance companies, for-profit hospital chains (financed by Wall St.), medical devices companies, and doctor partnerships investing in real estate and other speculative markets and raising their prices to pay for it.

As for Part D, prescription drugs for Medicare, the big Pharma price gouging is even more rampant, driving up the cost of the Part D fund. By the way, the prescription drug provision, Part D, passed in 2005, was intentionally never funded by Congress and George Bush. It became law without any dedicated tax, payroll or other, to fund it. Its US$50 billion plus a year costs were thus designed from the outset to be paid by means of the deficit and not funded with any tax.

Social Security Disability, SSI, has risen in costs, as a million more have joined its numbers since the 2008 crisis. That rise coincides with Congress and Obama cutting unemployment insurance benefits. A million workers today, who would otherwise be unemployed (and raising the unemployment rate by a million) went on SSI instead of risking cuts in unemployment benefits. So Congress’s reducing the cost of unemployment benefits in effect raised the cost of SSI. And now conservatives like Congressman Paul Ryan, the would be social security “hatchet man” for the rich, want to slash SSI as well as social security retirement, Medicare benefits for grandma and grandpa, Medicaid for single moms and the disabled (the largest group by far on Medicaid), as well as for food stamps.

Food stamp costs have also risen sharply since 2008. But that’s because real wages have stagnated or fallen for tens of millions of workers, making them eligible under Congress’s own rules for food stamp distribution. Now Ryan and his friends want to literally take food out of the mouths of the poorest by changing eligibility rules.

They want to cut and end benefits and take an already shredded social safety net completely apart – while giving US$4.5 trillion to their rich friends (who are their election campaign contributors). The rich and their businesses are getting $4.5 trillion in tax cuts in Trump’s tax proposal – not the $1.4 trillion referenced in the corporate press. The $1.4 million is after they raise $3 million in tax hikes on the middle class.

Whatever financing issues exist for Social Security retirement, Medicare, Medicaid, disability insurance, food stamps, etc., they can be simply and easily adjusted, and without cutting any benefits and making average households pay for the tax cuts for the rich in Trump’s tax cut bill.

If capital income earners (interest, rent, dividends, etc.) were to pay the same 6.2% it would permit social security retirement benefits to be paid at two thirds one’s prior earned wages, and starting with age 62.

Social security retirement, still in surplus, can be kept in surplus by simply one measure: raise the “cap” on social security to cover all earned wage income. Today the “cap”, at roughly US$118,000 a year, exempts almost 20 percent of the highest paid wage earners. Once their annual salary exceeds that amount, they no longer pay any payroll tax. They get a nice tax cut of 6.2 percent for the rest of the year (Businesses also get to keep 6.2% more). Furthermore, if capital income earners (interest, rent, dividends, etc.) were to pay the same 6.2% it would permit social security retirement benefits to be paid at two thirds one’s prior earned wages, and starting with age 62. The retirement age could thus be lowered by five years, instead of raised as Ryan and others propose.

As for Medicare Parts A and B, raising the ridiculously low 1.45 percent tax just another 0.25 percent would end all financial stress in the A & B Medicare funds for decades to come.

For SSI, if Congress would restore the real value of unemployment benefits back to what it was in the 1960s, maybe millions more would return to work (It’s also one of the reasons why the labour force participation rate in the US has collapsed the past decade). But then Congress would have to admit the real unemployment rate is not 4.2 percent but several percentages higher (Actually, it’s still over 10 percent, once other forms of “hidden unemployment” and underemployment are accurately accounted for).

As for food stamps’ rising costs, if there were a decent minimum wage (at least US$15 an hour), then millions would no longer be eligible for food stamps and those on it would significantly decline.

In other words, the US Congress and Republican-Democrat administrations have caused the Medicare, Part D, SSI, and food stamp cost problems. They also permitted Wall St. to get its claws into the health insurance, prescription drugs, and hospital industries – financing mergers and acquisitions activity and demanding in exchange for lending to companies in those industries that the companies raise their prices to generate excess profits to repay Wall St. for the loans for the M&A activity.

 

The Real Causes of Deficits and the Debt

So if social security, Medicare-Medicaid, SSI, food stamps, and other social safety net programmes are not the cause of the deficits, what then are the causes?

In the year 2000, the US federal government debt was about US$4 trillion. By 2008 under George Bush it had risen to nearly US$9 trillion. The rise was due to the US$3.4 trillion in Bush tax cuts, 80 percent of which went to investors and businesses, plus another US$300 billion to US multinational corporations due to Bush’s offshore repatriation tax cut. Multinationals were allowed to bring US$320 billion of their US$750 billion offshore cash hoard back to the US and pay only a 5.25 percent tax rate instead of the normal 35 percent. (By the way, they accumulated the US$750 billion hoard was a result of Bill Clinton in 1997 allowing them to keep profits offshore untaxed if not brought back to the US. Thus the Democrats originally created the problem of refusing to pay taxes on offshore profits, and then George Bush, Obama, and now Trump simply used it as an excuse to propose lower tax rates for repatriated the offshore profits cash hoard of US multinational companies. From $750 billion in 2004, it’s now $2.8 trillion).

So the Bush tax cuts whacked the US deficit and debt. The Bush wars in the middle east did as well. By 2008 an additional US$2 to US$3 trillion was spent on the wars. Then Bush policies of financial deregulation precipitated the 2007-09 crash and recession. That reduced federal tax revenue collection due to collapse economic growth further. Then there was Bush’s 2008 futile $180 billion tax cut to stem the crisis, which it didn’t. And let’s not forget Bush’s 2005 prescription drug plan – a boondoggle for big pharmaceutical companies – that added US$50 billion a year more. As did a new Homeland Security $50 billion a year and rising budget costs.

There’s your additional US$5 trillion added by Bush to the budget deficit and US debt – from largely wars, defence spending, tax cuts, and windfalls for various sectors of the healthcare industry.

Obama would go beyond Bush. First, there was the US$300 billion tax cuts in his 2009 so-called “recovery act”, mostly again to businesses and investors. (The Democrat Congress in 2009 wanted an additional US$120 billion in consumer tax cuts but Obama, on advice of Larry Summers, rejected that). What followed 2009 was the weakest recovery from recession in the post-1945 period, as Obama policies failed to implement a serious fiscal stimulus. Slow recovery meant lower federal tax revenues for years thereafter.

The problem with chronic US federal deficits and escalating Debt is not social security, Medicare, or any of the other social programmes.

Studies show that at least 60 percent of the deficit and debt since 2000 is attributable to insufficient taxation, due both to tax cutting and slow economic growth below historical rates.

Obama then extended the Bush-era tax cuts another US$803 billion at year-end 2010 and then agreed to extend them another decade in January 2013, at a cost of US$5 trillion. The middle east war spending continued as well to the tune of another $3 trillion at minimum. Continuing the prescription drug subsidy to big Pharma and Homeland Security costs added another $500 billion.

In short, Bush added US$5 trillion to the US debt and Obama another US$10 trillion. That’s how we get from US$4 trillion in 2000 to US$19 trillion at the end of 2016. (US$20 trillion today, about to rise another US$10 trillion by 2027 once again with the Trump tax cuts fast-tracking through Congress today).

To sum up, the problem with chronic US federal deficits and escalating Debt is not social security, Medicare, or any of the other social programmes. The causes of the deficits and debt are directly the consequence of financing wars in the middle east without raising taxes to pay for them (the first time in US history of war financing), rising homeland security and other non-war defence costs, massive tax cuts for businesses and investors since 2001, economic growth at two thirds of normal the past decade (generating less tax revenues), government health program costs escalation due to healthcare sector price gouging, and no real wage growth for the 80 percent of the labour force resulting in rising costs for food stamps, SSI, and other benefits.

Notwithstanding all these facts, what we’ll hear increasingly from the Paul Ryans and other paid-for politicians of the rich is that the victims (retirees, single moms, disabled, underemployed, jobless, etc.) are the cause of the deficits and debt. Therefore they must pay for it.

But what they’re really paying for will be more tax cuts for the wealthy, more war spending (in various forms), and more subsidisation of price-gouging big pharmaceuticals, health insurance companies, and for-profit hospitals which now front for, and are indirectly run by, Wall St.

 

Photo: A general view of the Capitol Dome in Washington, D.C. | Reuters

Go to top

About the Author

Dr. Jack Rasmus is author of the just published book, “Central Bankers at the End of Their Ropes? Monetary Policy and the Next Depression”, Clarity Press, July 2017, and the previously published “Systemic Fragility in the Global Economy”, also by Clarity Press, January 2016. For more information: http://ClarityPress.com/RasmusIII.html. He teaches economics at St. Marys College in Moraga, California, and hosts the radio show, Alternative Visions, on the Progressive Radio Network. He blogs at jackrasmus.com and his twitter handle is @drjackrasmus.

Canada-China Trade Amid NAFTA Friction

By Dan Steinbock

As tensions prevail in the NAFTA talks, Canada is hedging its bets by fostering consensus for a trade agreement with China.

 

On Sunday, Canadian Prime Minister Justin Trudeau shall start a trade and tourism dialogue with Chinese officials during his ongoing visit to China. Canada and China began to talk about a free trade agreement (FTA) more than a year ago, following back-to-back meetings of Trudeau and Chinese Premier Li Keqiang in China and Ottawa.

While Canada completed consultations on the matter, three rounds of exploratory talks were held between the two sides from February to August.

Trudeau’s visit takes place after the fifth round of talks over the North American Free Trade Agreement (NAFTA) ended in Mexico City amid simmering tensions.

Hedging Against thePotential NAFTA Collapse

Last year, the US bought three-fourths of Canadian exports, while Canada sourced almost two-thirds of its imports from America. US direct investment in Canada amounts to some $306 billion, while Canada’s investment in the US is almost $370 billion. But the US investment in Canada represents almost 20 percent of the latter’s GDP; while Canada’s investment in the US adds up to only 2 percent of the US’s GDP. The outcome of the NAFTA talks is thus far more important to Canada than to the US.

Intriguingly, the latter are likely to coincide with the time that Canada and China would need to finalise an FTA agreement. 

If the US withdraws from NAFTA, that would start a six-month legal process before official termination. While the Trump administration may see this as a negotiating tool to force Canada and Mexico to accept its demands, the latter could use the time to complete trade talks with Brazil and the European Union (EU).

Canada and Mexico are hedging their bets against a potential NAFTA collapse by pushing for deals with new partners, particularly with China and some other Asian countries.

In 2015, China bought 12 percent of Canadian exports, whereas Chinese exports accounted of 4 percent of Canadian total. A Chinese-Canadian FTA could strengthen bilateral trade and investment significantly.

Last year, the combined investment from China and Hong Kong in Canada soared to $26.4 billion, which is almost half of Asia Pacific investment in the country. But since the starting-point is low, China was only the eighth largest investor in Canada.

Canada’s former China ambassador Howard Balloch believes that Canada “should be able to negotiate with China” during the NAFTA talks. Canada has a “huge interest” in China and trade diversification whatever the outcome of the NAFTA talks.

Intriguingly, the latter are likely to coincide with the time that Canada and China would need to finalise an FTA agreement. 

Political Divisions, Domestic Support

With a population of more than 1.3 billion, China is perceived as a lucrative market for Canada’s agriculture and natural resources sectors. Last year, Trudeau’s cabinet approved the Trans Mountain pipeline expansion mainly to improve Canada’s ability to get oil to China.

However, there is an intense debate over the proposed FTA with China. While Trudeau’s Liberal Party supports greater bilateral trade, Conservative leader Andrew Scheer opposes a bilateral FTA. Relying on the “China threat” card, Conservatives have criticised the Liberals for allowing Chinese takeovers of Canadian businesses, while taking advantage of Canadian concerns about human rights and environmental standards.

What about ordinary Canadians? Asia Pacific Foundation’s polling suggests that a slight majority of 55 percent might support a Canadian-Chinese FTA, but UBC’s recent poll indicates that 70 percent of Canadians support the idea and only 20 percent are against it.

Such a shift would reflect greater economic interest in a bilateral trade deal – but also growing concern about the Trump White House, rising US protectionism and the potential NAFTA collapse.

 

Canada’s Shift toward Asia

China is seen as doing more to “maintain peace” than the US and two-thirds of Canadians believe China will be the “largest economic power” by the 2020s.

While US officials have sought to subdue NAFTA tensions by extending the timetable for renegotiations that may only pour oil on the simmering fire. In Mexico, tight elections in mid-2018 will complicate the NAFTA talks; in Canada, conservatives are positioning for the 2019 elections.

Nevertheless, Canada is losing its faith in the US. According to UBC, 36 percent of Canadians believe the US is a “more responsible global leader” than China (28%). Yet, 37 percent of the citizens are “uncertain” about the matter. Moreover, China is seen as doing more to “maintain peace” than the US and two-thirds of Canadians believe China will be the “largest economic power” by the 2020s.

Amid the new uncertainty, Canada is likely to do what it can to sustain NAFTA over time, while – at least under Trudeau – it is likely to seek a trade deal with China that would foster diversification, new investment at home and greater presence in Asia.

From China’s standpoint, a bilateral deal with Canada would open new doors to North America and pave way to the Free Trade Agreement of Asia Pacific (FTAAP), which would be broader and more inclusive than the current trade pact efforts.

 

The original commentary was published by China Daily on December 4, 2017

The author is the founder of Difference Group and has served as research director at the India, China and America Institute (USA) and visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore).  

Photo Courtesy: GREG BAKER / AFP/GETTY IMAGES

Go to top

About the Author

Dr. Dan Steinbock is Guest Fellow of Shanghai Institutes for International Studies (SIIS), see http://en.siis.org.cn/. The commentary is part of his SIIS project “China in the Era of Economic Uncertainty and Geopolitical Risk”. For his global advisory activities and other affiliations in the US and Europe, see http://www.differencegroup.net/

Overcoming Decades of Missed FDI in the Philippines

By Dan Steinbock

Since the 1980s, economic success in Asia has often relied on foreign investment, at least initially. Last week, President Duterte took a decisive step toward that direction. Why has the change taken so long? And why is the devil in the details?

 

In the third quarter, the Philippine economy grew 6.9%, which made it Asia’s second fastest-growing economy after Vietnam. But unlike Vietnam, which has reaped many benefits of foreign direct investment (FDI), the Philippines has not.

Again and again, former President Benigno Aquino III acknowledged the need to boost FDI during his reign. Yet, the main challenge to attract FDI has been the 60/40 foreign ownership law, which Aquino neglected to confront between 2010 and 2016.

On November 21, President Duterte ordered the National Economic Development Authority (NEDA) to take “immediate steps” to lift or ease restrictions on foreign direct investment (FDI) in the Philippines to foster economic growth.

With this directive, the foreign investment negative list is expected to be cut by half. The goal is to “raise the Philippines’ competitiveness, and to foster higher economic growth in the Association of Southeast Asian Nations (ASEAN) region and beyond.”

As I have argued for years – on the basis of my work in competitiveness, innovation and FDI in several continents – a change is desperately needed in the Philippines. And it is about three decades late.

Falling Behind

While FDI stock illustrates the size of foreign investment historically, FDI flows exemplify the size of recent investments. In the years of booming globalisation, FDI stock as percentage of GDP increased slowly in the Philippines, but more than doubled in Indonesia and almost quadrupled in Thailand – until global FDI plunged during the global financial crisis in 2008.

True, FDI flows in the Philippines more than doubled to $5.7 billion in 2013-14, but only to plunge to $4.9 billion in 2015 toward the end of the Aquino era. These flows should be set in the historical context: In the early 2010s – when Aquino promised to attract far more investment to the Philippines – FDI as a percentage of GDP actually declined to 12.4%. This figure was only half of that in Indonesia, barely a fourth of its counterpart in Thailand and a fifth of the regional average.

During the past decade, Singapore has remained Southeast Asia’s leader in inward FDI flows, which peaked at $74 billion in 2014.

More recently, the FDI performance of both Indonesia and Thailand has eroded significantly. In turn, the weaker FDI players – Myanmar, Cambodia, Laos and Brunei – continue to generate about $1 billion to $2 billion annually.

Consequently, Malaysia, Vietnam and the Philippines are now competing FDI flows in the same category. In the early 2010s, Malaysia was the leader with some $12 billion in FDI flows. Currently, Vietnam has the mantle with almost $13 billion, but – in the Duterte era – FDI flows to the Philippines grew to almost $8 billion last year and there is potential for far more (Figure 1).

 

Figure 1: Inward FDI Flows, 2005-2016

Source: Data from UNCTAD

 

In historical view, the picture is worse because, unlike its more successful ASEAN peers, the Philippines has failed to benefit from inward FDI for decades.

In the 1990s, FDI stock as percentage of the GDP was more than 30% in Malaysia, close to 28% in Vietnam but only 8% in the Philippines. By 2016, the ratio had soared to 57% in Vietnam, while climbing to 41% in Malaysia. In the Philippines, it was 20% – while remaining stagnant through much of the Aquino era (Figure 2).

 

Figure 2: Inward FDI Stock as Percentage of GDP, 1995-2016

Source: Data from UNCTAD

The good news is that the change in FDI flows has come with the Duterte era. The bad news is that it has been preceded by three decades of missed opportunities.

But how should the Philippines attract FDI?

 

Using FDI to Upgrade Competitiveness

Boosting FDI flows should be linked with efforts to enhance innovation in strategic clusters that will be vital in the future as the Philippines competitiveness is enhanced and upgraded.

The bottom line is that FDI flows should enhance Philippine competitiveness over time. Otherwise, foreign investment may benefit foreign companies and their investors – but not Philippine living standards.

In the Global Competitiveness Index, the Philippines is today ranked 56th, right after Vietnam. In the Corruption Perception Index, the country (101st) is ahead of Vietnam (113th).

But here’s the real challenge: Despite impressive growth performance, the Philippines (113th) remains far behind Vietnam (68th) in the Ease of Doing Business rankings, along with Malawi, Swaziland, and Palestine. That’s unconscionable. The Philippines needs substantial structural reforms to unleash entrepreneurship.

But how should the Duterte government use FDI to upgrade competitiveness?

First of all, the objective should not be to attract investors with subsidised input costs, but with higher productivity. For instance, subsidising electricity rates may offer private gains for investors, but improving the efficiency and quality of the electricity grid would support the productivity of the entire business environment.

Second, the goal should not be to improve the quality of the location in ways that benefit just investors, but multiple companies and industries. For instance, tariff exemptions generate market distortions, whereas improved customs procedures enhance national competitiveness.

Third, it is vital to develop “sticky” incentives that are tied to the location. Corporate tax breaks boosts the “race to the bottom”, whereas general improvements in the business environment contribute to the country’s attractiveness.

Fourth, focus should be on sustained investment rather than transient one-time deals. If incentives are tied to the total size of the investment, they will be more beneficial to the country (and to the investors). Indeed, the government’s “Build, Build, Build” infrastructure plan is one vital instrument in this regard. Similarly, incentives that encourage profitability and motivate investors to upgrade activities in the country contribute to more sustained FDI.

Indeed, boosting FDI flows should be linked with efforts to enhance innovation in strategic clusters that will be vital in the future as the Philippines competitiveness is enhanced and upgraded.

 

The Magnitude of Challenges

Nevertheless, increased foreign investment is no panacea, as labour and nationalist leaders often argue. If FDI flows rise at the cost of the country’s long-term productivity and economic development, nation’s sovereignty will be penalised. Furthermore, without appropriate efforts at the long-term “indigenisation” of foreign investment, FDI benefits are likely to prove transient.

In much of emerging Asia, including China, national leaders did not opt for the FDI as a way to enhance productivity because it was the best option, but because alternatives were worse.

What the Philippines needs is inclusive foreign investment, which requires a long-term focus on economic development.

Second, the countries that have truly benefited from FDI are ones that have excelled in “learning by doing”. Initially, foreign multinationals arrived with their own eco-systems; over time, foreign suppliers were replaced by cost-effective indigenous contractors.

Third, as China’s success has demonstrated, assembly manufacturing, coupled with unleashed entrepreneurship, can make a great difference in economic development because it opens the benefits of industrialisation to many.

Even currently favourable “demographic sweet spots” will only prove tomorrow’s development traps unless jobs are available, under-employment is marginal and the best and the most industrious are not being exported to other countries.

Moreover, significant FDI flows are necessary but not enough in countries in which manufacturing lacks adequate presence and in which landed elites are reluctant to renounce historical privileges – even in the name of their children or grandchildren.

Undoubtedly, the Duterte government is now paving way to recapture some of the FDI flows of the missed decades. Yet, the magnitude of the challenges should be taken seriously.

What the Philippines needs is inclusive foreign investment, which requires a long-term focus on economic development.

 

The original commentary was published by The Manila Times on November 27, 2017

Featured Image: Leaders at the 30th Association of Southeast Asian Nations (ASEAN) summit in Manila, Philippines, April 29, 2017. © Reuters

Go to top

About the Author

Dr. Dan Steinbock is Guest Fellow of Shanghai Institutes for International Studies (SIIS), see http://en.siis.org.cn/. The commentary is part of his SIIS project “China in the Era of Economic Uncertainty and Geopolitical Risk”. For his global advisory activities and other affiliations in the US and Europe, see http://www.differencegroup.net/

1...1,0521,0531,054...1,125Page 1,053 of 1,125

EDITOR'S PICK OF THE WEEK

CFO's new mandate. CFO explaining the presentation

The Performance and Transformation Orchestrator: The CFO’s New Mandate in the Age of AI

Anglea 0
By Terence Tse CFOs are evolving into AI-driven transformation orchestrators, balancing finance, technology, and strategy while upskilling teams, managing risks, and driving measurable business value. A key insight from this year’s AI for CFOs event, organized...
Read more

WISE DECISION MAKER GUIDE

POWER INFLUENCERS

Emerging Trends

BUSINESS AND INNOVATION

FINANCE & BANKING

The Future of Global Trade

© 2025 The World Financial Review | Empowering communication globally