Trump’s tariffs and their effect on the Philippines

The worry, of course, is that Donald Trump — who took his oath as the US’ 47th president last Tuesday — would increase tariffs on various countries and that (ostensibly) includes the Philippines.

China, Canada, and Mexico are the clear targets of Trump’s tariff pronouncements and whether these are merely for negotiating leverage remains to be seen. There are indications that the increased tariffs on such countries would — at least in the short term — benefit Southeast Asian countries like Thailand, Vietnam, and the Philippines.

The logic of increasing tariffs seems counterintuitive, to say the least, particularly as far as classic economic theory is concerned. But the gamble is that by imposing tariffs instead of income taxes, the average US citizen will be forced to buy local, thus freeing up additional cash, while encouraging local production.

As for the Philippines, keep in mind that our simple average Most-Favored-Nation applied tariff rate (as of 2022) is around 9.8% for agricultural products and 5.5% for non-agricultural products, with 67.6% of its tariff lines bound as per World Trade Organization commitments, with a simple average final bound tariff rate of 24.9%. US tariff rates, at least as for 2021, hover around 1.47%.

In any event, the Philippines seem to be quite “insulated” as far as the afore-described tariff shocks are concerned. As reported by BusinessWorld (“PHL most insulated to Trump tariffs among ASEAN — HSBC,” Jan. 9): “The Philippines is the most insulated from US President-elect Donald J. Trump’s planned restrictive policies among Association of Southeast Asian Nations (ASEAN) economies, HSBC said. ‘Across ASEAN, the Philippines is the most resilient country amidst these tariff risks,’ HSBC economist for ASEAN Aris D. Dacanay said xxx and ‘Vietnam, Thailand, these are the countries exposed to the risk of US tariff rates. But for the Philippines, we are very insulated from that risk’.”

There is the 1989 Philippine-US Trade and Investment Framework Agreement (TIFA), which sought to implement Philippine minimum access commitments, as well as address issues relating to illegal transshipments of textiles, trade facilitation, and intellectual property rights.

It would definitely help if the Philippines achieved the renewal of its Generalized System of Preferences (GSP) benefits: “Under the US GSP, the Philippines enjoys duty-free treatment for products covered by 3,500 US tariff lines. Philippine utilization of US GSP is steady at an average rate of 74%, estimated at $1.3 billion on average from 2005 to 2020.” (“Philippine-United States Trade Relations: Looking Back and a Way Forward,” East-West Center, June 2022).

The GSP “is the oldest and largest US trade preference program, authorized in 1974 and subsequently renewed 14 times. Once an anchor of US international economic relations with developing countries, GSP promoted economic development through the duty-free entry to the United States of over 3,500 non-import sensitive products from 120 beneficiary developing countries around the world. However, the program lapsed in December 2020 and has yet to be renewed.”

The Philippines, specifically, was the “fifth-largest beneficiary of GSP in the world,” with “$1.6 billion worth of GSP exports to the United States in 2020, bolstering the US relationship with a geographically strategically invaluable partner in the South China Sea. During its tenure, GSP benefited micro-, small, and medium-sized businesses in the Philippines, driving job growth and making the Philippines a more advantageous sourcing location for US manufacturers and consumers who sought to diversify their supply chains from China. The country also saw the growth of important emerging sectors, including its travel goods manufacturing industry. Over the past four decades of GSP authorization, US-Philippine trade grew enormously, rising from $532 million in 1962 to $16.8 billion in 2020. When GSP lapsed in 2020, the United States was the second-largest market for Philippine exports and the third-largest for imports.”

And yet, the US’ renewal of GSP benefits the latter, inasmuch as it rebuilds “strong relations with emerging economies. While there is increasing momentum in Congress toward reinstating GSP, the process has been lumbered by debates over various amendments. Reauthorizing GSP by 2025 is a prerequisite for the United States to push back against China’s development offensive financed through its Belt and Road Initiative (BRI).” (“Retooling US Trade to Meet the China Challenge: GSP Matters,” CSIS, November 2024).

Ultimately, what is crucial is Philippine competitiveness and here the Philippines is on stable ground. The Switzerland-based Institute of Management Development (IMD) in 2024 retained the Philippines’ rank of 52 despite adding three countries from the previous year, with high marks in “employment,” “tax policy,” and “domestic economy.”

Obviously, improvements are necessary: the Philippines merely ranks 13th among 14 Asia-Pacific countries, and had dismal showings in “business legislation,” “basic infrastructure,” and “education.” Challenges are seen too in the capability for “job-generating investments,” “inflation,” and “infrastructure.”

There are also the uncertainties brought about by China’s continued blatant bullying in the West Philippine Sea, which speaks to the fact that while indeed “economic security is national security,” the reverse is also true.

The views expressed here are his own and not necessarily those of the institutions to which he belongs.

Jemy Gatdula is the dean of the Institute of Law of the University of Asia and the Pacific and is a Philippine Judicial Academy lecturer for constitutional philosophy and jurisprudence.