Navigating tariff headwinds: Positioning the Philippines for opportunity

On April 2, United States President Donald Trump announced he would impose a 10% baseline tax on imports from all countries, aside from higher tariffs that would be slapped on countries running trade surpluses with the United States. The higher tariffs were scheduled to take effect April 9, or what he called “Liberation Day.”

There are exemptions from the US reciprocal tariff, including steel and aluminum articles, auto parts, copper, pharmaceuticals, semiconductors, lumber articles, bullion, energy, and certain minerals that are not available in the US.

In the succeeding days, the tariff announcement caused global markets to react swiftly and violently, with losses amounting to trillions of dollars in market capitalization.

The tariff rates differed from country to country. In Asia, for instance, Cambodia was slapped with an added 49% rate, Vietnam with 46%, Thailand with 36%, Indonesia with 32%, and Malaysia with 24%. China was initially charged an additional 34% tariff.

After Liberation Day arrived, however, Mr. Trump announced a 90-day tariff pause for countries that did not make retaliatory moves, with only the 10% universal rate staying in effect. However, on China’s goods, he raised the tariff to 125%.

On April 11, President Trump added smartphones and computers to the list of exempted goods.

For Philippine exports, a 17% tariff will apply.

For decades, the US has been the Philippines’ top export market. It has been a key economic partner. According to the Philippine Statistics Authority (PSA), total exports to the US in 2024 amounted to $12.12 billion, which accounted for almost 17% of the country’s total exports.

Thus, with higher tariffs, it is reasonable to expect that Philippine exports may face declining demand due to increased costs, which could have ripple effects on domestic jobs and trade growth.

But not all prospects are gloomy for the Philippines. While there are economic risks in the sense that Philippine products would now be less competitive in the US market, there could also be opportunities in the form of new trade and investment prospects. With the government’s ongoing efforts to enhance the country’s investment climate, coupled with the relatively lower tariff rates imposed by the US on imports from the Philippines, the nation remains well-positioned to become a competitive investment destination in the region.

First, the Philippines could establish itself as an attractive alternative destination for businesses looking to diversify their supply chains. The Philippines stands to benefit from its strategic geopolitical position, as it may capitalize on its stable and allied status in the Indo-Pacific region to attract companies seeking to diversify their supply chain and lower risks from the impacts of the trade war of the US with China.

Specifically, the creation of the Luzon Economic Corridor will allow the Philippines to promote Luzon as a premier trade and logistics hub by leveraging the corridor spanning Subic-Clark-Manila-Batangas as the main gateway for these investors. The country’s skilled workforce, geostrategic location, and natural resources further strengthen the Philippines’ appeal as a manufacturing and investment hub.

Second, aside from being an investment destination, the Philippines could also serve as a transshipment hub, allowing businesses from countries facing higher tariffs to route their exports through the Philippines and take advantage of its lower tariff rates.

Third, we can even improve our economic relations with the US. The imposition of reciprocal tariffs may provide strategic opportunities for the country to improve its bilateral economic relationship with the US in terms of trade and investment, noting that the Philippines is among the least hit among key exporters to the US.

By leveraging the Philippines’ long-established alliance with the US, the Philippine government can push for the establishment of a US-Philippines Free Trade Agreement to secure better trade terms and tariff-free access for key exports. In exchange, the Philippines can diversify and expand trade with the US by importing more key commodities to balance the trade flows and enhance bilateral trade reciprocally.

Fourth, we can at the same time look inward and take advantage of the chance to bolster our domestic economy. By expanding local production and manufacturing, we can lessen our dependence on imports and attract investments aimed at serving the expanding domestic market. With its sizable consumer base, the Philippines has the potential to drive economic growth internally.

With the recent passage of the CREATE MORE Act (Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy), along with other ongoing initiatives such as the institutionalization of the “Green Lanes” executive order which aims to stimulate economic growth and cultivating a conducive environment for investors to thrive, these developments position the country strategically ahead within the region.

There is no doubt that President Trump’s imposition of tariffs has caused alarm and uncertainty in the Philippines and across the globe. The next few weeks and months will reveal how the rest of the world will cope with such a disruption. We have to be prepared for risks. But looking at risks also necessitate exploring ways to mitigate these risks, unearthing opportunities and making the most of them. It is here we learn adaptation and resilience.