“For the most part, having a negative trading balance is normal despite the nomenclature. It becomes a cause for concern when our economy trades with and straddles two warring major economic powers.

There is probably not a single major economic superpower on the planet with whom the Philippines actively trades that we don’t have a trade imbalance with.

Where such trade imbalances are negative current accounts, that means we buy more from the counter-economy than we sell to it. The opposite occurs where we sell more and a positive current account is created.

When such trade imbalances occur, the equation comprised of goods and services to and from the other economy is lopsided. To regain an equilibrium the balancing variables are likely to be debt. Thus, an economy with whom we have a negative current account is an economy we owe to. Stepping back and looking at the equation again, an economy is either a creditor or a debtor when trade imbalances occur.

At this juncture, note the difference between two terms. There is the balance of trade (BOT) that creates a positive or negative current account. And there are the balance of payments (BOP) that counts receipts, disbursements and the inflow and outflow of funds.

Of an economy’s BOP, the BOT is the largest component. This is important. BOP surpluses can conceal a negative current account in the BOT. Unfortunately, we have that today. Even as a surplus of funds are flowing in, our negative current account means we are importing more than we are exporting.

Allow us to focus more on BOT than our BOP since that is where we have a negative trade balance. For the most part, having a negative trading balance is normal despite the nomenclature. It becomes a cause for concern when our economy trades with and straddles two warring major economic powers in a deepening trade and currency war.

Any nation with both a negative current account against the two protagonists and with a currency so volatile that it is all-too-easily impacted compels a constant check on its BOT bearings.

Trade, where we discuss imbalances, is assumed as official and legitimate. There is the other sort of trade which is unquantifiable but may nevertheless be very real if not very substantial.

Think of the hidden commerce and trade of illegal drugs dumped and floated along our coasts, the sudden influx of undocumented and illegal Chinese labor in construction sites and drug laboratories protected by political bailiwicks, the proliferation of deadly Chinese-operated methamphetamine laboratories and production facilities in our far flung boondocks, and the matter of unlicensed Philippine online gambling operators (POGO) and money launderers.

Like cockroaches these infest under the woodwork and complicate the already complicated BOT we have with warring states on our opposite flanks. Analyze our BOT predicament against the backdrop of past policies and the current global trade conflicts between the US and China.

Prior to the Aquino administration, we wisely pursued export-based manufacturing initiatives in both primary and finished goods with more of the former than the latter. When the Aquino government came around, as the peso strengthened against a weakened dollar caused by the after-effects of the residual American financial crisis continued under Barack Obama, we recklessly refocused on importations. The resulting surge in consumerism with a strengthened peso increased gross domestic product but seriously damaged our manufacturing and industrialization initiatives.

The US-China trade wars together with the negative BOT produced by excessive importations under Benigno Aquino III may see us paying the price for reckless consumerism today. Our trade deficit with China worsens as China imports less while she reels from an aggregate oversupply due to abnormally high US tariffs that prevent China from selling to the US. Notice how our exports of raw nickel to China have declined since the end of the Aquino administration? Nickel is a primary good needed for most of the electronic equipment China produces.

Increasingly indebted to China, any further escalation in the US versus China trade wars may catalyze a decline in our BOT and adversely hit our BOP.