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Philippines May Be Less Affected by US Tariff Hike, but Uncertainty Weighs on Investment Decisions

Strategic Insights

— 2 min read

The Philippines may be relatively less affected by the US President Donald Trump's decision to impose a 20 percent tariff on all Philippine exports, according to banking executives and economists. However, the uncertainty surrounding the policy is likely to weigh on investor sentiment and delay growth-related decisions. The US will impose a 20 percent general tariff on all Philippine exports starting August 1, higher than the 17 percent reciprocal tariffs previously announced.

Key Takeaways:

  • The Philippines' relatively low exposure to high-tariff categories may serve as a buffer against the worst effects of a protectionist policy shift in the US.
  • Local exporters that sell to the US market could see demand shrink as their products become more expensive due to higher tariffs.
  • Some companies may find alternative markets to redirect to, but it depends on their capacity and supply chains in place.
  • If other countries such as Vietnam face higher tariffs, the Philippines could become more attractive as a manufacturing base, especially for industries where the country already has existing capacity.
  • The tariff hike could fuel inflationary pressures, which in turn may limit the Bangko Sentral ng Pilipinas (BSP)'s ability to cut interest rates.
  • The BSP has maintained a dovish stance, signaling room to further cut rates in the second half on the view that inflation remains manageable.
  • The tariff hike could result in job losses, as Filipino business exporters may be forced to reduce production if they fail to secure alternative export markets.
  • The US is the Philippines' largest export market, with goods valued at $1.1 billion in May, representing 15.3 percent of the country's total exports.
  • The government must position the Philippines as a viable investment destination and a reliable trade partner through prioritizing ease of doing business, advancing economic liberalization, and providing support for exporting enterprises.
  • It is high time for the government to consider restarting negotiations with the US, particularly to seek exemptions for critical products like agricultural goods and semiconductors.

Statistics:

  • The US will impose a 20 percent general tariff on all Philippine exports starting August 1.
  • The Philippines' exports to the US valued at $1.1 billion in May, representing 15.3 percent of the country's total exports.
  • The US is the Philippines' top destination for exports, accounting for 17 percent of the total last year.
  • The tariff hike could fuel inflationary pressures, which in turn may limit the BSP's ability to cut interest rates.
  • The BSP has maintained a dovish stance, signaling room to further cut rates in the second half on the view that inflation remains manageable.

Sources:

  • "Filipino exporters call for government support as they brace for impact of 20 percent tariff" by Philippine Daily Inquirer, August 1, 2023
  • "Philippines to review impact of US tariff hike on economy" by The STAR, August 1, 2023
  • "US decision to raise tariff on Philippine goods to 20 percent will have material impact on Philippine economy" by Moody's Analytics, August 1, 2023
  • "Trade secretary Cristina Roque to lead Philippine delegation to US to discuss lower tariff" by The STAR, August 1, 2023
  • "Department of Economy, Planning and Development Secretary Arsenio Balisacan to review impact of tariff on economy" by The STAR, August 1, 2023
  • "Philippine Exporters Confederation Inc. president Sergio Ortiz-Luis Jr. calls for greater government support for exporters" by Philippine Daily Inquirer, August 1, 2023

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