By Jenina P. Ibañez
THE INITIAL PHASE of the US-China trade deal will be positive for Philippine exports and capital markets, economists said.
The United States and China on Friday concluded phase one of a trade agreement following a nearly 18-month dispute that saw hundreds of billions of dollars in tariffs imposed between the two economies.
The initial deal will reduce US tariffs on China, halving the tariff rate on $120 billion of goods to 7.5% from 15%. It also shelved tariffs on Chinese consumer products due to take effect Sunday.
In turn, China agreed to increase purchases of US agriculture and energy products.
Philippine agricultural exports do not directly compete with the US, according to University of Asia and the Pacific economist and former tariff commissioner George N. Manzano in a phone interview Monday. He expects US exports to China to focus on soybeans and meat.
“(US products) are not directly competing with us except for coconut oil,” he said.
University of the Philippines-Virata School of Business professor and former tariff commissioner Epictetus E. Patalinghug said that the Philippines will benefit as the US and China will likely return to trade volumes nearly as large as the pre-tariff period.
“Filipino exporters supplying components and parts to China which assemble final products to be exported to the US will benefit,” he said in an e-mail.
The United States is the Philippines’ top export destination. According to the Philippine Statistics Authority, exports to the US in the first 10 months totaled $9.65 billion, accounting for 17% of overall Philippine exports.
Exports to China — the country’s fourth-largest export destination — accounted for 13.2% of overall Philippine exports and were worth $8.1 billion year-to-date in October.
The overall easing of trade frictions will improve the world economy, Mr. Manzano said, which can provide a boost to the capital markets.
“Any easing of trade friction is good for the world economy. If you have trade friction, there is a systemic risk on the whole global system. Any easing of that will be good for us.”
“It doesn’t only affect us in terms of our trade. It affects us in terms of capital markets,” he said, adding that the stock price index drops on news of a trade war, regardless of the indirect impact on the Philippines.
In terms of investment, Mr. Patalinghug said Vietnam and Malaysia which host companies that have relocated from China due to the trade war will lose out as China can now export to the US at cheaper rates.
He said that the Philippines will not be affected as China-based companies did not relocate to the country.
But Mr. Manzano said the trade tensions, despite the initial deal, have influenced investors to look outside of China.
“The trade war already has changed the mentality of investors that they need to go out of China, or lower their concentration in China. (They are) looking for other alternatives,” he said.
He said the end of the trade war is not guaranteed and the deal not likely permanent, noting that the temperament of US President Donald Trump “can easily reverse.”
US Trade Representative Robert Lighthizer said in a statement Friday that the phase one agreement achieves “meaningful, fully-enforceable structural changes and begins rebalancing the US-China trade relationship.”
The US will be maintaining 25% tariffs on $250 billion worth of Chinese imports. The US also called on China to boost intellectual property protections.
Moving forward, Mr. Manzano said that a US-Philippine free trade agreement will be beneficial, especially after the current Generalized System of Preferences (GSP) status that gives Philippine exports to the US zero or reduced tariffs expires.
“Now is a good time to do that because of disillusionment with China. It will keep the American markets open to us.”