Archive for the ‘International political economy’ Category

Trump trade war: May and China fire warning shots




I thought Trump just wants to make a deal, not make war!

So what gives?

Methinks, the merchants of death are making Trump do this.

But this is self-defeating and counter-productive!

Since the truckers of death are not necessarily independent of, or far removed from, the merchants of innocuous commodities!

Take McDonell Douglas Corporation, an American company, which later on gobbled by The Boeing Company.


McDonnell Douglas Corporation | American company |…/McDonnell-Douglas-Corporation


So McDonnell (as Douglas Aircraft) produced the famous DC series of commercial aviation planes, used its expertise to convert the DC-3, the world’s first commercial airliner, into military use as the C-47.

This should not come as a surprise since Donald W. Douglas (1892-1981), Douglas Aircraft’s founder, designed the Cloudster, the first aerodynamically streamlined plane, and founded his company to fill an order for three of the planes for the U.S. Navy.

During the war Douglas contributed 29,000 warplanes, one-sixth of the U.S. airborne fleet. After the war the company continued to dominate the commercial air routes with its new DC-6 and in 1953 brought out its most advanced piston-engined airliner, the DC-7, whose range made possible nonstop coast-to-coast service. With the development of commercial jets, however, Douglas began to lag behind Boeing. It was because of its deteriorating financial condition in the 1960s that it sought a merger with McDonnell.

Under its founder James S. McDonnell (1899–1980), that company grew up quickly during World War II and became a major defense supplier. It designed the world’s first carrier-based jet fighter and went on to produce such widely used jet fighters as the F-4 Phantom, the A-4 Skyhawk, the F-15 Eagle, and the F-18 Hornet. The company also manufactured launch vehicles and cruise missiles. In 1984 it purchased Hughes Helicopters Inc. from the estate of Howard Hughes. In the 1970s the company began diversifying with the acquisition of companies engaged in data processing, satellite communications, information services, and the manufacture of electronic devices.

The end of the Cold War in the early 1990s resulted in a major contraction of U.S. defense industries. In the wave of business consolidations and mergers that followed, McDonnell Douglas was acquired by The Boeing Company.

And what does The Boeing Company produce?

AeroWeb | Boeing (Rockwell) B-1B Lancer

AeroWeb | Boeing CH–47/MH-47 Chinook

AeroWeb | Boeing P–8A Poseidon

But not only those nasty things that help politicians and military leaders command their underlings to kill people especially from afar and with almost no warning.

What else does The Boeing Company produce and sell?



Boeing Company, American aerospace company—the world’s largest—that is the foremost manufacturer of commercial jet transports. It is also a leading producer of military aircraft, helicopters, space vehicles, and missiles, a standing significantly enhanced with the company’s acquisition of the aerospace and defense units of Rockwell International Corporation in 1996 and its merger with McDonnell Douglas Corporation in 1997. Formerly Boeing Airplane Company, the firm assumed its current name in 1961 to reflect its expansion into fields beyond aircraft manufacture. Headquarters were in Seattle until 2001, when Boeing relocated to Chicago.

Boeing Company’s constituent business units are organized around three main groups of products and services—commercial airplanes, military aircraft and missiles, and space and communications.

Boeing manufactures seven distinct families of commercial aircraft, which are assembled in two facilities—Renton and Everett—in Washington state and one facility in California. The Renton plant builds the narrow-body Boeing 737 and formerly built the 757 aircraft (discontinued in 2004), while the wide-body Boeing 767 and 777 aircraft and a limited number of the largely discontinued 747s are assembled at the Everett plant. The 787 aircraft are assembled at the Everett plant and at a facility in North Charleston, South Carolina.

Boeing Business Jets, a joint venture of Boeing and General Electric Co., makes and markets business jets based on the 737-700 airliner as well as VIP versions of the 747, 777, and 787 airliners.

The company’s military-related activities are centred on the design, manufacture, and support of fighter aircraft, bombers, transports, helicopters, and missiles. Its products include, among others, the F-15 Eagle, F/A-18 Hornet and Super Hornet, and AV-8 Harrier fighters; the C-17 Globemaster III airlifter; the AH-64 Apache series of attack helicopters; the CH-47 Chinook transport helicopter; and the AWACS (Airborne Warning and Control System) aircraft, based on the 767. Boeing contributes to the Lockheed Martin F-22 Raptor air-superiority stealth fighter and the Northrop Grumman B-2 Spirit stealth bomber.

In partnership with Bell Helicopter Textron, it builds the V-22 Osprey tilt-rotor aircraft, and, with United Technologies’ Sikorsky division, it made the RAH-66 Comanche armed reconnaissance helicopter.

The company also builds the Harpoon antiship missile, the air-launched Standoff Land Attack Missile (SLAM), and the air-launched cruise missile (ALCM).

In the space and communications sector, Boeing produces the Delta family of launch vehicles; the Inertial Upper Stage (IUS), an in-space solid-rocket booster; and rocket engines for Delta launchers and other vehicles. It participates in processing, ground operation, and training activities for the U.S. space shuttle fleet through United Space Alliance, a joint venture with Lockheed Martin Corporation.

As the National Aeronautics and Space Administration’s (NASA’s) prime contractor for the International Space Station, Boeing leads an industry team comprising most major U.S. aerospace companies and hundreds of smaller suppliers and integrates the work of ISS participants from non-U.S. countries. Its involvement in commercial space development includes partnerships in the multinational Sea Launch Company and in the Teledesic consortium formed to build a satellite-based, Internet-like telecommunications service.

It also makes satellites for the Navstar Global Positioning System (GPS).

In 2016 Boeing employed a workforce of about 150,500 people in 65 countries and 27 U.S. states.


It seems that many modern-day technologies started as death technologies.

But not so!

The spear, a weapon that kills, is also the javelin thrown by well-contured athletes of the ancient Olympic Games, the Panhellinic Games of Ancient Greece, originally a festival in honor of Zeus.

It appears that human beings have been producing dual purpose tools since then.

What is quite different now is that the weapons of death have been developing across the centuries to enable alleged combatants in the comfort of airconditioned ‘fortresses’ thousands of miles away to kill other people, designated as adversaries or enemies, without warning and without the normal declaration of war.

I admire the bravery and courage of these arm-chair warriors!

But wait, the merchants of death need to wrack up more sales to keep the economy going, to keep people employed, to get representatives of the people elected and re-elected because they keep on bringing home the bacon by way of more defense contracts for the home district.

So why limit warfare against pip-squeak non-state actors like al-Qaeda and IS?

Why not bring the war to the rogue states: Iran, Iraq, Taliban’s Afghanistan, Yemen, North Korea, and the like?

But that still be inadequate for the merchants’ purposes.

So bring the war to the doorsteps of the great powers like China…and the Russian Federation!

Meanwhile, the same merchants of death will continue to produce and improve and innovate on innocuous products like commercial ailiners and GPS.

What else is new then?

What would be new is if the TRUMPy gets his way.

Everybody makes a deal to make money.

Nobody makes war.

I therefore nominate the Orange Clown in the North for the Nobel Peace Prize.

Further on, I propose that the Nobel Committee revoke the same award from former US President Barack Obama, for being a peace hypocrite and a murderous war-monger!


Barack Obama


“The changing triangular relations between the Philippines, the United States and the People’s Republic China: From Obama, Aquino, and Xi and beyond”


Amado M. Mendoza, Jr. and Richard Javad Heydarian

Part III

It’s complicated between the new frenemies!

Relations between the United States and China were rebooted more than four decades ago when diplomatic relations were re-established between the two powers.  While initial relations between the two were predictably frosty, even hostile (as evident in the Korean war of the early 1950s), the fissures between erstwhile communist comrades afforded the strategic opportunity for the United States to partner with China versus the Soviet Union.  China gained a lot from the normalization though the dimensions were not apparent at the time.  While China gained entry into the United Nations Security Council at Taiwan’s expense as a consequence, the contrasting fates between it and the Soviet Union reveal the full extent of the paybacks.  While the Soviet Union disappeared into the pages of history in the early 1990s, China proved to be the greatest beneficiary of a Western-induced globalization that needed access to China’s relatively cheap labor force and extensive markets created by growing economic prosperity.

Barack Obama

Realist thinkers have long emphasized the tensions and conflict generated by a rising power that will inevitably seek to challenge an extant hegemon.  Complementing Organski’s theories on power transition, Mearsheimer (2001) argued that great powers are not content with existing power but seek hegemony instead for their security.  This is so since they cannot know how much power is enough for present and future needs.  For this compelling reason, Mearsheimer believes that great powers will strive for hegemony now and eliminate the possibility of challengers to best ensure their security.  He also notes however that a state cannot attain global hegemony since the too many oceans can effectively stop power.  States can only achieve regional hegemony   In the most recent update of his treatise, Mearsheimer (2014 and 2014a) elaborates that a rising China will seek to dominate Asia, while the United States, determined to remain the world’s sole regional hegemon, will go to great lengths to prevent that from happening.

Current headlines seem to indicate the verity of Mearsheimer’s words.  Nonetheless, his views are not shared by American IR theorists and practitioners.  The realist par excellence and the grand strategist who helped US President Richard Nixon re-establish ties with China, Henry Kissinger, wrote these words of caution:

An explicit American project to organize Asia on the basis of containing China or creating a bloc of democratic states for an ideological crusade is unlikely to succeed—in part because China is an indispensable trading partner for most of its neighbors. By the same token, a Chinese attempt to exclude America from Asian economic and security affairs will similarly meet serious resistance from almost all other Asian states, which fear the consequences of a region dominated by a single power. The appropriate label for the Sino-American relationship is less partnership than “co-evolution.” It means that both countries pursue their domestic imperatives, cooperating where possible, and adjust their relations to minimize conflict. Neither side endorses all the aims of the other or presumes a total identity of interests, but both sides seek to identify and develop complementary interests (Kissinger 2011).

An opposite view is held by liberal institutionalists.  Liberals argue that China’s membership in international organizations such as the United Nations, World Trade Organization, International Monetary Fund and the World Bank has brought benefits and has acculturated China to accept the existence of these same institutions.  In this sense, China is not really an out-and-out revisionist power seeking to alter the world order and institutions.

Whether one is a realist or a liberal theorist, it cannot be denied that economic relations between the two states have grown immensely over the past decades.   A US Congressional Research Service paper (Morrison 2015) reports that U.S.-China economic ties have expanded substantially over the past three decades. Total U.S.-China trade rose from $2 billion in 1979 to $592 billion in 2014.  China is currently the United States’ second-largest trading partner, its third-largest export market, and its biggest source of imports. China is estimated to be a $350 billion market for U.S. firms, based on U.S. direct and indirect exports to China and sales by U.S.-invested firms in China. Many U.S. firms view participation in China’s market as critical to staying globally competitive. General Motors (GM), for example, which has invested heavily in China, sold more cars in China than in the United States each year from 2010 to 2014.  In addition, U.S. imports of low-cost goods from China greatly benefit U.S. consumers, and U.S. firms that use China as the final point of assembly for their products, or use Chinese-made inputs for production in the United States, are able to lower costs. China is the largest foreign holder of U.S. Treasury securities ($1.24 trillion as of December 2014).  China’s purchases of U.S. government debt help keep U.S. interest rates low.

Despite growing commercial ties, the bilateral economic relationship has become increasingly complex and often fraught with tension. From the U.S. perspective, many trade tensions stem from China’s incomplete transition to a free market economy. While China has significantly liberalized it’s economic and trade regimes over the past three decades, it continues to maintain (or has recently imposed) a number of state-directed policies that appear to distort trade and investment flows. Major areas of concern expressed by U.S. policymakers and stakeholders include China’s relatively poor record of intellectual property rights (IPR) enforcement and alleged widespread cyber economic espionage against U.S. firms by Chinese government entities; its mixed record on implementing its World Trade Organization (WTO) obligations; its extensive use of industrial policies (such as financial support of state-owned firms, trade and investment barriers, and pressure on foreign-invested firms in China to transfer technology in exchange for market access) in order to promote the development of industries favored by the government and protect them from foreign competition; and its policies to hold down the value of its currency.  Many U.S. policymakers argue that such policies negatively impact U.S. economic interests and have contributed to U.S. job losses.

Chinese President Xi Jinping takes part in a meeting with his French counterpart at the Elysee Palace in Paris, on March 26, 2014 in Paris. Xi was set today to sign a series of major business deals on the second day of a lavish state visit to France.  Xi is on his first-ever European tour and after visiting The Netherlands and France will head to Germany and Belgium.   AFP PHOTO POOL CHRISTOPHE ENA

How important is China in economic terms, especially to the United States?  China has 1.36 billion people, the largest national population in the world. Its economy produced $17.63 trillion in 2014, (based on purchasing power parity), making China the world’s largest economy. The European Union is second at $17.61 trillion, while the United States fell to third place with $17.61 trillion.  However, China is still a relatively poor country. Its economy only produces $12,900 per person, compared to the GDP per capita of $52,800 for the United States.  This allows China to pay its workers less, making its products cheaper, which lures overseas manufacturers to outsource jobs there.  China became the world’s largest exporter in 2013. It exported $2.21 trillion of its production, beating the EU, at $2.173 trillion and the U.S., at $1.575 trillion.   China ships 17% of its exports to the U.S., creating a $315 billion trade deficit in 2012.  China does a lot of manufacturing for foreign corporations, including American firms.  In effect, a lot of China’s exports are actually for American companies for American consumers (Amadeo 2015a).

In addition, China is the largest foreign holder of U.S. Treasury bills, bonds and notes[1]. As of May 2015, China owned $1.27 trillion in US treasuries. This amount is a little over one-fifth (or 20.8%) of the $6.1 trillion public debt held by foreign countries (U.S. Treasury 2015).  Owning U.S. treasuries helps China by keeping its yuan weaker vis-à-vis the U.S. dollar, which in turn makes its exports competitive and creates jobs for the Chinese working people.  Specifically, the Chinese hold their currency, the yuan, at a fixed rate compared to a basket of currencies, mainly comprised by the US dollar.  When the dollar falls in value, China buys U.S. treasuries which increases the demand for the dollar and appreciates its value.  On the other hand, the sale of public debt to China allows the U.S. economy to grow by way of increased federal government programs.  This is especially important as the U.S. had been facing budget (albeit shrinking) deficits in recent years (Timaraos 2015).

China’s role as America’s largest banker obviously gives it some political leverage.  Every now and then, China threatens to sell part of its debt holdings. It knows that if it did, U.S. interest rates would rise slowing U.S economic growth.  China does this whenever the U.S. allows the value of the dollar to drop, which makes the debt China holds less valuable.  It is not an unalloyed weapon at the hands of the Chinese, however.  China would not call in its U.S. debt all at once. If it did so, the demand for the dollar would drop like a rock. This dollar collapse would disrupt international markets worse than the 2008 financial crisis. China’s economy would suffer along with everyone else’s.  More likely, China would slowly begin selling off its Treasury holdings. Even when it just warns that it plans to do so, dollar demand starts to drop. This hurts China’s competitiveness, as it raises its export prices, so U.S. consumers start buying U.S.-made products instead. China must further expand its exports to other Asian countries, and increase domestic demand, before it can call in its U.S. debt holdings.  (Amadeo 2015a and Amadeo 2015b).

The extended discussion above illustrates how economically co-dependent the U.S. and China had become in recent years.  This complicates the strategic relationship between the two powers.  In a way, the post-modern and hip concept of being ‘frenemies’ is apropos for both states.  This unprecedented relationship sharply contrasts the US-Soviet relationship during the Cold War.  Notwithstanding the détente period, the enmity between the two is undeniable.  In no way were both powers dependent on each other economically as trade and economic exchanges between the two were largely circumscribed by strategic considerations.  Embargos and trade controls were imposed by the U.S. and its European allies on the Soviet Union.  The basic idea is to prevent the Soviets from strengthening themselves through trade with the West.  No such similar inhibitions informed the U.S. China economic relations.

Both states realize this co-dependence and seek to leverage the fact to each other’s advantage.  From the American viewpoint, China has to weigh the consequences of recklessness and the possible loss of the opportunities and advantages of behaving responsibly within the context of U.S.-led international regime.  On the Chinese side, meanwhile, they seek to find out how much the envelope could be pushed before the Americans decide that strategic considerations are weightier than economic consequences.  The situation is one where two powers need each other but are mindful of power balance between them.  Obviously, being ‘frenemies’ is more complicated and less straightforward than being outright foes.  This dynamic is bound to prevail for decades to come.



[1] The U.S. debt is the sum of all outstanding debt owed by the Federal Government. It’s greater than $18 trillion, and is tracked by the national debt clock. America’s debt is the largest in the world for a single country. It runs neck and neck with that of the European Union, which is an economic union of 28 countries. Nearly two-thirds is the public debt, which is owed to the people, businesses and foreign governments who bought Treasury bills, notes and bonds (Amadeo 2015c).

Introduction to IPE (short version)

Overview of IPE II

A last minute compromise between Democrats and Republicans last week may have averted a debt crisis and bankruptcy in the United States last week.  

However, it was enough to stop Standard & Poor’s, the ratings agency, to downgrade US debt paper from a pristine AAA to AA+ (with a negative outlook),  the first downgrade in U.S. history and a vote of no-confidence in the world’s largest economy and its political leadership.

The ratings agencies

The move is likely eventually to raise borrowing costs for the U.S. government, companies and consumers.

By calling the outlook “negative,” S&P signaled another downgrade is possible in the next 12 to 18 months.

It was another ratings agency, Moody’s which assigned the AAA rating in 1917.

Moody’s and Fitch, the two other ratings agencies retained the AAA rating but Moody warned it has a negative outlook for the US.  This means that a downgrade is possible in a year’s time.

S&P intoned:  “The downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges.”

The ratings agency put forth a blistering view of Washington partisanship, adding that “we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy.”

One lawmaker offered an equally biting retort.

Rep. Barney Frank (D-Mass.) angrily denounced the ratings downgrade, saying S&P was “trying to justify their reputation” after failing to spot problems in the nation’s financial system before the economic crisis of 2008.

Rep. Barney Frank (D-Mass)

“These are some of the people who have the worst records of incompetence and irresponsibility around,” Frank, the top Democrat on the House Financial Services Committee, said on MSNBC.

Writing at the New York Times, Paul Krugman ironically pointed out that it’s hard to think of anybody less qualified to pass judgement on America than the ratings agencies given their previous endorsement of sub-prime mortgages.

Paul Krugman

The Obama administration attacked the credibility of the analysis underlying Standard & Poor’s decision to downgrade the United States’ top credit rating on Friday, saying it had found a $2 trillion error.

S&P was forced to remove the number from its analysis after Treasury officials discovered that the rating agency’s estimates of the government’s discretionary spending was $2 trillion too high.

There was evident dismay, and some anger, within the Obama administration at S&P’s decision to downgrade U.S. debt despite the errors officials said they had found in the calculations.

“A judgment flawed by a $2 trillion error speaks for itself,” a Treasury spokesman said after S&P cut the long-term U.S. credit rating by one notch to AA-plus on concerns about growing budget deficits.

The comment marked the first time the U.S. Treasury had publicly chastised S&P. Administration officials have privately grumbled that the rating agency’s understanding of the U.S. political system was unsophisticated.

Notwithstanding S&P’s past record, its downgrade of the US credit rating has made its mark.  Across the world, stock markets crashed amid fears of economic slowdowns in both the US and the Eurozone.  Asian bourses were not spared and the Philippine Stock Exchange gave up 1.42 percent in last Friday’s trading.  

The country’s financial authorities are also concerned since we hold about US$26 billion in US securities, and most of our gross international reserves (GIR) are also in US instruments. The US market itself is a major export destination for Philippine manufactures and the appreciation of the Philippine peso vis-a-vis the US dollar will dampen American demand for Philippine products.  

China, the US’ biggest creditor,  said Washington only had itself to blame and called for a new stable global reserve currency.

“The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone,” China’s official Xinhua news agency said in a commentary.

Peoples' Republic of China--the US' main creditor

In the Xinhua commentary, China roundly condemned the United States for its “debt addiction” and “short sighted” political wrangling and said the world needed a new stable global reserve currency.

“China, the largest creditor of the world’s sole superpower, has every right now to demand the United States address its structural debt problems and ensure the safety of China’s dollar assets,” it said.

It urged the United States to cut military and social welfare expenditure. It also said further credit downgrades would very likely undermine the world economic recovery and trigger new rounds of financial turmoil.

“International supervision over the issue of U.S. dollars should be introduced and a new, stable and secured global reserve currency may also be an option to avert a catastrophe caused by any single country,” Xinhua said.

S&P blamed in part the political gridlock in Washington, saying politics was preventing the United States from addressing its deficit and debt problems.

British business minister Vince Cable backed China’s call for a new stable global reserve currency but said that for the moment the U.S. dollar remained key.

UK business minister Vince Cable

“Frankly, the American legislators made a terrible mess of things a few weeks ago, they have now got back on track, they have undertaken to manage their debt in a prudent way,” Cable said.

Cable’s remarks may be bitter pills for China to swallow.  As the US’ largest creditor, China has the most to lose with the downgrade of US credit ratings.  Indeed, American legislators have a played a part in the latest crisis.  However, China shares some of the short-sightedness herself.  America’s economic woes did not arise overnight yet China chose to continue investing in US treasury bills.  Prudence should have cautioned her to diversify her investment portfolio.

The markets are in for a ride in the weeks to come.

Note from Bong Mendoza:  This is another cross-post from the Forging a New Philippine Foreign Policy (FNPFP) blog that I moderate.

Ed C. Tadem

Ed Tadem


Eduardo Climaco Tadem, Ph.D., is a professor of Asian Studies at the Asian Center of the University of the Philippines Diliman. He is currently a visiting researcher at the Kyoto University Center for Southeast Asian Studies.  He is also a key expert of the UP Thematic Assessment of Philippine Foreign Relations project, which forms the core of the blogger-contributors to FNPFP.

This article was first published by the Philippine Daily Inquirer,]


Jusuf Anwar, Indonesian ambassador to Japan, has bewailed the overly stringent Japanese national examinations for foreign caregivers and nurses. Out of the 500 Indonesians who took the examinations in 2008 and 2009, only two have passed and have become certified nurses.

Anwar revealed this concern at the “First Public Forum on Indonesia” held on July 23, 2010 at the Kyoto University Center for Southeast Asian Studies.

The problem, he said, is the “kanji” character proficiency part of the examinations. An added burden is that when they fail their exams on the third try, the nurses are obliged to leave the country immediately.

The examinations are part of the criteria introduced by the Tokyo government in line with the Indonesia-Japan Economic Partnership Agreement (IJ-EPA) provision on allowing foreign caregivers and nurses to practice their profession in Japan. The IJ-EPA took effect in 2008 but two years after, Ambassador Anwar said he doubted its usefulness unless the examinations can be made less rigid to enable more Indonesian nurses and caregivers to qualify.

He urged that, rather than emphasizing the “kanji” writing abilities of the nurses, the examinations should concentrate on the competence and technical abilities of the examinees. On this point, Anwar was certain that more Indonesian nurses would easily qualify, given their past experiences working in Japan, even if only in a “kenshusei” (trainee) capacity, and from the gathered testimonies of their patients. And for those who fail, they should be allowed to stay and work for at least one year rather than abruptly ending their employment, Anwar added.

Observers see Japan’s decision to allow the certification of foreign nurses and caregivers as being prompted by concerns over the country’s rapidly aging population and the lack of competent professionals to care for elderly Japanese.

The Japan Times has reported that more and more senior Japanese are left to fend for themselves and many die alone in their homes. The Times reported that in Tokyo alone, “People over 65 who died alone in their residence, including by suicide, stood at 2,211 in 2008, compared with 1,364 in 2002.”

The Japanese Health, Labor, and Welfare Ministry has denied any connection between “accepting foreign caregivers” and “the manpower shortage in health care.” This is belied, however, by a health ministry survey cited by the Times that shows “about 60 percent of hospitals and about 50 percent of welfare facilities that have accepted Indonesian candidates (say) they offered them jobs hoping to improve staff levels.”

Philippine nurses, too

The Philippine Overseas Employment Administration (POEA) announced in early 2009 that Japan was poised to hire 1,000 foreign nurses and caregivers over the next two years subject, of course, to their passing the language proficiency examinations.

This was a concession included in the controversial Japan-Philippines Economic Partnership Agreement (JPEPA).

The woes of Indonesian health care practitioners resonate in the case of their Filipino counterparts. Since the Philippine program began last year, only one Filipino, Ever Lalin, has successfully hurdled the Japanese tests.

In May 2010, Japan Today reported that another batch of 116 Filipino nurses and caregivers left for Japan to undergo a six-month language and cultural course after a screening program that the POEA described as “more rigorous.”

During this training program, the Filipinos will receive a monthly allowance of $400 (about P18,400). Those who pass the Japanese certification and become regular nursing or caregiver staff will get a salary of $1,600 (about P73,600) or more a month.

Nursing associations in both Indonesia and the Philippines have expressed dissatisfaction with their respective EPAs with respect to the hiring of nurses and caregivers to work in Japan.

In a position paper issued as early as 2007, the Philippine Nurses Association (PNA), through its president, Dr. Leah Samaco-Paquiz, said that the JPEPA “shortchanges the professional qualifications of Filipino nurses and exposes them to potential abuse and discrimination.”

Dr. Paquiz cited the Japan Nursing Association’s own call for reforms and improvements in their own country’s nursing system in terms of “improving the working conditions, salaries, and benefits of Japanese nurses before Japan allows the entry of Filipino nurses.”

Dr. Paquiz also pointed out that Indonesian nurses under the IJ-EPA “got a better deal” compared to Filipino nurses, as the former are required to have “only three years of formal nursing education and only two years of work experience,” and are not required to pass an Indonesian licensure examination before they are allowed entry into Japan. Filipino nurses, on the other hand, “are required to have had four years of formal nursing education plus three years of work experience, in addition to having passed the licensure examination in the Philippines.”

The major gripe of the PNA, however, centers on the degradation of the Filipino nurses’ position in that, despite having acquired “four years of higher education…, proof of competence via a Philippine license to practice…(and) three years of solid work experience,” the nurses will end up simply as trainees under the supervision of a Japanese nurse for up to three years until they pass the Japanese licensure examination.

Dr. Paquiz adds: They also risk having virtually zero employment rights in Japan as they are considered neither employees nor workers under Japan’s Immigration Control Act. Specific provisions committing Japan to international core labor standards and the protection of the rights of migrant health workers are also absent in the agreement.

The PNA also decried the high language skills required, noting that they “constitute an almost impregnable barrier” to the nurses’ entry. Given these “unnecessarily stringent requirements, (Filipino nurses) will most likely end up providing cheap labor and quality nursing care as nursing trainees in Japanese health care facilities.”

Dr. Paquiz ends the PNA’s position with the plea not to commoditize the nursing profession by classifying nurses as a mere economic category under the JPEPA.

Unfair labor?

The PNA’s fears appear to be confirmed by Emily Homma, a resident of Saitama prefecture who has been assisting Filipino nurses and caregivers. In a February 11, 2010 letter to the Japan Times, Homma charges that the JPEPA has “placed many Filipino nurses and caregivers working in Japan in a miserable situation where they are subjected to unfair labor practices, extreme pressure to pass licensing exams in Japanese, cramped living conditions, and poor salaries.”

On the other hand, the Indonesian National Nurses Association, through its president, Achir Yani, “has called on the Japanese government to be more flexible in the national nursing exam….”

Yani, a University of Indonesia professor, also suggested that a “kanji” pronunciation aid be allowed and that the examinees be given four chances (instead of three) to pass the tests.

Kyodo News reports that Japanese Foreign Minister Katsuya Okada had met with Indonesian and Filipino officials in January 2010 and promised “to consider addressing the language issue for foreign nurses.”

At the July 2010 forum at Kyoto University, however, Ambassador Anwar said he has repeatedly raised this issue with the Japanese government but his efforts to have the examination rules relaxed have been in vain.

And given the niggardly passing rate for Indonesian nurses and caregivers, Ambassador Anwar says that “the future of the program to alleviate the problems associated with Japan’s aging society is not so bright.”

In this blog entry, I share the talking points I made at the 5th ASEAN-South Korea Cooperation Forum held in Hua Hin, Thailand, December of last year.


  • Global economic imbalances have been a key issue in international policy discussions in recent years and most especially in the summits held in the Asian region during the past few months.
  • There is a need to distinguish global imbalance from the concept of an internal (to a country) imbalance, which is typically understood in terms of full employment and the absence of inflationary pressures.  Global imbalances are defined as “external positions of systematically important economies that reflect distortions or entail risks for the global economy” (Bracke, Bussiere, Fidora & Straub 2008/2010).
  • The definition has 3 components:
  1. External positions, encompassing current account positions as well as financial positions—this is apparently crucial in view of financial globalization, which implies that the financial dimension is more than the current account dimension;
  2. Systematically important economies, including both the deficit side (e.g. the United States) and the surplus side (e.g. Asia, oil exporters)—while the notion of systemic importance is not fully clear, it’s still functional since it implies that economies participate in the global goods and financial markets and may have a global impact either because of their size or because of other factors (e.g. Thailand appeared to be systematically important at the onset of the 1997 Asian financial crisis even if it accounted for a very small share of world output [< than 1%]);
  3. Distortions & risks, so as to distinguish imbalanced from balanced positions.  Distortions are deviations from the (heuristic) flexible price or perfect competition world and can be induced by policy choice or private sector decisions.  Risks refer to the macroeconomic and financial implications, both under a scenario of unwinding (risk of disorderly unfolding, as manifested por ejemplo in the financial market turmoil of summer 2007) and under a scenario of further increasing imbalances (risk of a protectionist backlash, exemplified in the limited progress made under the Doha round of trade talks).  The reference to risks and distortions captures the extent to which external positions are imbalanced, as opposed to balanced.
  • In the main, the current situation is not exceptional by historical standards as there have been episodes of global economic imbalances before.  In fact, one can argue that global imbalance is the norm rather than the exception.  An imbalance in one part of of the world is matched by an imbalance of the opposite sign in another.  To be concrete, a nation’s foreign exchange surplus is going to be match by at least one other’s deficit.
  • Bracke et al. identified these previous episodes of global economic imbalances: (a) Under the gold standard (of the late 19th century up to the First World War), trade balance adjustment was typically very slow and difficult/costly for deficit countries—and this triggered a search for a better international monetary system (apart from the dysfunctionality of a limit supply of the precious metal relative to growth of international transactions); (b) In the inter-war period, growing imbalances ended in an unraveling of international free trade and monetary arrangements and added to the growing geo-political tensions in the run-up to World War II: (c) After several decades of economic growth across countries, tensions over external imbalances during the early 1970s (exemplified by the so-called Nixon shock when the US unilaterally abandoned the 35$/ounce of gold fixed rate which underpinned the international monetary system) led to a fundamental overhaul of the international monetary system, marking the end of the Bretton Woods system; (d) In the 1980s, widening current account positions led to intensive international coordination with concrete policy commitments under the Plaza (1985) and Louvre (1987) agreements focused on exchange rates; (e) Elsewhere in the 1980s, many developing countries like Brazil, Mexico, the Philippines were saddled with foreign debt burdens that needed restructuring.  In the process, multi-lateral financial institutions such as the International Monetary Fund and the World Bank gained a better handle in influence macro-economic policy in these countries; and (f) In the 1990s, external imbalances in emerging economies were a key source of concern what with a series of financial crises sweeping across nearly all large emerging economies.
  • Bracke and his colleagues argue that three main features set today’s situation apart from past episodes of imbalances:  (a) the emergence of new players, in particular emerging market economies such as China and India (and to a lesser extent Russia and Brazil); (b) an unprecedented wave of financial globalization, with more integrated global financial markets and increasing opportunities for international portfolio diversification, also characterized by considerable unevenness and asymmetries in the level of financial market development across countries; and (c) the favorable global macroeconomic and financial environment, with record high global growth rates in recent years, low financial market volatility and easy global financing conditions running at least up to the summer of 2007.

In sum, the current situation has unprecedented features in that, for the first time, emerging economies (China particularly) are actually transferring net savings to advanced economies.

Bracke et al. identified a number of key structural factors (including asymmetric and incomplete financial globalization amidst rapid global economic integration) and cyclical (or macroeconomic policy-induced) factors contributed to the current global imbalances.

i.     Asymmetric and incomplete financial globalization.

  1. Capital market liberalization and integration may generate net capital flows only because countries are vastly different in their levels of financial development and institutional quality.  Economies with more developed financial markets can potentially accumulate foreign liabilities vis-à-vis countries with less developed financial systems in a gradual, long-lasting process, despite higher capital-to-labor ratios.
  2. Financial systems that are developed and well-functioning result in deeper financial markets, allowing lower domestic savings.  Countries with deeper financial markets tend to have lower savings and accumulate net foreign liabilities.  Conversely, countries with shallow financial markets, and therefore, high financial market volatility, may have higher savings (owing to the lack of insurance, for instance) but higher capital outflows (resulting from a desire to seek more secure returns).  Countries with deeper financial markets can invest in high-return assets.  As a result, they may receive positive factor payments even if their net foreign asset position is negative.  Low-income countries with low level of financial development will be worse off in such an environment because their savings may bypass their domestic financial systems and flow to developed countries with highly sophisticated financial markets (at least in the short run).  Financial imperfections can therefore increase savings and the demand for safe assets.
  3. Financial imperfection can also reflect a country’s inability to supply (safe) assets.  If safe assets are not provided in every single region in the world, one should observe capital flows to regions that are able to supply the desired assets.
  4. Why does capital flow from emerging markets mainly to the US and will this flow be sustained forever?  Although most industrial economies are increasingly financially open, they still lag behind the US with regard to financial development. The comparative of the US in generating financial assets is, however, not eternally given and cannot be considered as exogenous.  In fact, policy failures could lead to a questioning of the exceptional position of the US as host of flights to quality and safety.

ii.      The cyclical factors are focused on the US and could be separated to factors that had a potentially cyclical impact on private sector aggregate demand and those that affected public sector demand.

  1. Widening US current account deficits have been accompanied by a fall in household net savings (reflected in the rise of private consumption).  The rise in US private consumption has been one of the triggers for the observed unbalanced path of global demand.
    1. Productivity-driven changes in US permanent income and the rise in household wealth reflecting a surge in asset prices are the usual explanations for the rapid growth of US private consumption.
    2. These two factors have fundamentally different implications for widening current account deficits. Productivity-driven permanent income changes may imply that current account balances are an equilibrium response of rational agents to changes in the economic environment.  However, American consumption growth driven by fluctuations in asset prices could give rise to a boom-bust cycle.  As the current account is usually a countercyclical variable, a revision of consumer and investor expectations and a corresponding drop in asset prices could trigger a sudden unwinding of the US current account deficit.
    3. Much of the relevant literature argues that there is a negative relationship between a fiscal deficit and a trade balance though there are dissenting opinions.  However, even if the immediate impact of fiscal policy on the trade balance may still be disputed, budget deficits might jeopardize a country’s ability to meet its future obligations.  In theory, the limited response of the trade balance to changes in the fiscal position is usually driven by a fall in investment.  However, this lowers the potential economic growth rate, endangering the country’s ability to repay its future debts.
    4. Financial market developments since the summer of 2007—a global re-pricing of risk—were a clear manifestation of existing global economic imbalances and should have started a more determined adjustment process.  However, with structural drivers remaining largely in place, especially the attractiveness of US financial assets as a safe haven for investors across the world, a decisive adjustment in external imbalances remained relatively unlikely.
  2. Earlier this morning, we heard Simon Tay of the Singapore Institute of International Affairs (SIIA)  refer to a “wounded America”—“still powerful but … weakened economically, politically and in ‘soft power’.”  Nonetheless, the US plays a key role to global economic recovery even as it has a lot to do with the current economic malaise.
    1. Great structural changes in world trade and finance occur quickly. The 1945-2010 era of relatively open trade, capital movements and foreign exchange markets is being destroyed by a predatory financial opportunism that is breaking the world economy into two spheres: a dollar sphere in which central banks in Europe, Japan and many OPEC and Third World countries hold their reserves the form of U.S. Treasury debt of declining foreign-exchange value; and a BRICSA-centered sphere, led by China, India, Brazil, Russia and South Africa (the last addition is complement of University of Cape Town sociology professor Ari Sitas), reaching out to include Turkey and Iran, most of Asia, and major raw materials exporters that are running trade surpluses.
    2. What is reversing trends that seemed irreversible for the past 65 years is the manner in which the United States has dealt with its bad-debt crisis. The Federal Reserve and Treasury are seeking to inflate the economy out of debt with an explosion of bank liquidity and credit – which means yet more debt. This is occurring largely at other countries’ expense, in a way that is flooding the global economy with electronic “keyboard” bank credit while the U.S. balance-of-payments deficit widens and U.S.  official debt soars beyond any foreseeable means to pay. The dollar’s exchange rate is plunging, and U.S. money managers themselves are leading a capital flight out of the domestic economy to buy up foreign currencies and bonds, gold and other raw materials, stocks and entire companies with cheap dollar credit.
    3. This outflow from the dollar is not the kind of capital that takes the form of tangible investment in plant and equipment, buildings, research and development. It is not a creation of assets as much as the creation of debt, and its multiplication by mirroring, credit insurance, default swaps and an array of computerized forward trades. The global financial system has decoupled from trade and investment, taking on a life of its own.
    4. In fact, financial conquest is seeking today what military conquest did in times past: control of land and basic infrastructure, industry and mining, banking systems and even government finances to extract the economic surplus as interest and tollbooth-type economic rent charges. U.S. officials euphemize this policy as “quantitative easing” or QE.  The Federal Reserve is flooding the banking system with so much liquidity that Treasury bills now yield less than 1%, and banks can draw freely on Fed credit. Japanese banks have seen yen borrowing rates fall to 0.25 percent.
    5. This policy is based on the wrong-headed idea that if the Fed provides liquidity, banks will take the opportunity to lend out credit at a markup, “earning their way out of debt” – inflating the economy in the process.
  3. What really needs to be done?  If the conventional view on global imbalances is based on a few basic propositions: that (i) they are the ultimate cause of the financial crisis, and (ii) mainly the result of overspending in the US and currency manipulation in China; then (iii) the overall policy objective should be to rebalance which requires that deficit countries should save more and surplus countries less, and (iv) that exchange rate flexibility should be enhanced. Traditionally, overspending used to be blamed on government budget deficits, so the policy prescription would call for reduced government spending. But since the crisis, regulatory failure appears to have emerged as a new culprit. Financial regulation failed to detect and stop excessive credit growth which in turn made it possible for US households to over-consume.  Now that financial reform legislation has supposedly fixed that problem in the US, attention appears to have shifted onto global imbalances and exchange rate flexibility.
    1. However, what is not discussed as much is the downside of raising savings to rebalance in the midst of an anemic recovery. Economists often talk from both sides of their mouths to deal with the problem: Spending should be raised in the short run to revive growth when in a slump, but needs to be curtailed in the long run when the economy recovers. But, the short run fix takes us further away from the long run objective and it is never clearly spelled out how one goes from the former to the latter without tripping along the way.
    2. It is possible that the conventional view suffers from an even deeper problem, for it assumes a world that no longer exists. It implicitly presupposes an international economy consisting of distinct national economies with their own separate systems of financial intermediation tied to one another mainly through trade. But, in a world of free capital flows why should the net demand for national currencies and thus the market determination of exchange rates depend solely on trade balances?  The conventional view would only make sense in a world where financial assets are traded mainly to move goods; where central banks control credit growth and where the current account rules the roost. Of course, none of this is consistent anymore with the increasingly transnational world we inhabit, a world that is interconnected through financial flows and global production networks; one where the notion of global financial intermediation is no longer an empty supposition.
  4. Remedying current economic imbalances is the objective of various summits held in Asia over the second half of the current year.  There is really a need for cooperation and coordinated policy actions to place the world economy on a more secure path to economic recovery and eventually to high growth, job creation, and financial stability.  While my new friend, Dr. Heenam CHOI from South Korea will make his own presentation on global economic imbalances especially from the G-20 perspective, allow me to say a few words with respect to the recently-concluded G-20 summit held in South Korea.
    1. To my mind, the said summit was principally designed to resolve differences between the US and China.  The US has long claimed that by almost all measures China’s currency is purposefully grossly undervalued and with an undervalued currency, as the argument goes, China is distorting global financial flows in its favor.  On the flipside, China and other emerging economies such as Brazil are angry at the Fed’s decision to pump $600 billion into the American economy in early November 2010 claiming the move would flood developing countries with cheap, speculative dollars and thus weaken local economies.

i.      “Those US dollars end up going abroad like a tsunami and for these developing countries it’s very difficult to contain that pressure,” according to Mauricio Cardenas of the Brookings Institute.  He continues: “So the dollars are intended to reactivate the economy in the US but end up overseas and that, of course, is a problem for these developing countries where these dollars cause abjection of local currencies.”

ii.      A Brazilian economist opined that the Fed’s decision will ultimately mean developing countries will have less money they can put away in reserves.  “To the extent the US wants to reduce its balance of payments deficits, it will be like reducing everybody else’ capacity to accumulate reserves.”  Brazil and other emergency country-members of the G20 liked the accumulation of reserves as that was one of the key reasons how they could defend themselves from the economic crisis without the crisis becoming a BOP nightmare.

iii.      The G20 summit ended with a bland statement declaring that the group will monitor development for signs of countries artificially deflating their currencies gained a lukewarm welcome from critics who said the group had papered over the cracks of a problem that could jeopardize recovery from the economic crisis.  In particular, the G20 leaders were unable to agree on how to identify when global imbalances pose a threat to economic stability, merely committing themselves to a discussion of a range of indicators in the first half of 2011.

iv.      While G20 tightened its unity in response to the crisis two years ago, the variable-speed recovery since then has fragmented the group.  Slow-growing or slowly-recovering economies have kept interest rates at record lows to kickstart growth while big emerging markets have come roaring back so fast that many are worried about overheating.

v.      Agreement in the recent G20 summit was undermined in the opinion of some observers by US premature and very public advocacy of limits to deficits—a proposal opposed by the surplus economies—particularly China and Germany.  While the group sought to revive the moribund Doha trade talks, which collapsed in disarray in 2008 with India strongly resisting US attempts to open its economy to US exports, it has offered no sense of how to resolve tensions between rich and poor nations that sank the Doha talks.

vi.      Nonetheless, several cooperative gains can be cited.  In September, the G20 made the historic breakthrough to grant a greater voice to developing nations in the International Monetary Fund, reflecting a shift of global power to emerging heavyweights such as China and India.  Earlier G20 meetings have helped establish tougher regulations on the amount of core capital banks should hold under the so-called Basel III accord.  And lastly, while the failure of the US and South Korea to finalize a landmark trade agreement during the G20 summit last month, its recent approval is a good sign of international cooperation.

  • It was my purpose to simply offer some talking points as inputs to a subsequent discussion and I’m afraid I spent too much time discussing theoretical issues.  However, I could not help myself.  A review of the summits held in recent months reminded me of the realist-liberal debate in IR/IPE theory regarding the prospects of international cooperation.  This review indicates that serious difficulties stand in the way of much-need international cooperation so the world economy can effect a decisive recovery.  However, even as obstacles have impeded progress, gains can still be made.  The intellectual and practical challenge for all of us is to find ways and means to push cooperation despite strong temptations to beggar-thy-neighbor.
  • Thanks for your kind attention.  I would also like to thank the organizers, especially Thitinan, for inviting me and making possible my first attendance of an ASEAN-Korea Cooperation Forum in such a beautiful and significant locale—Hua Hin, Thailand. Good day, ladies and gentlemen.