SCMAP Perspective is our fortnightly column on PortCalls, tackling the latest developments in the supply chain industry, as well as updates from within SCMAP. On this column, Henrik Batallones takes a stab at what lies ahead after US president Donald Trump imposed sweeping tariffs on all its trading partners.
Bumpy ride
How exactly will Donald Trump’s “Liberation Day” tariffs impact the Philippines?
If you focus on the fact that our country is among those his administration singled out, then you could say we’ll have it bad. The baseline tariffs announced last week on exports from all countries to the United States is 10%; the Philippines was slapped with 17%. For comparison, it’s higher than Singapore, which received just the baseline tariff, but much lower than our fellow ASEAN neighbors. Cambodia, for instance, was slapped with 49% tariffs, while Vietnam was slapped with 46% – and both countries are home to a significant manufacturing sector that caters to American markets.
Going with Trump’s reasoning – that the tariffs are a response to the United States being “looted, pillaged, raped and plundered by nations near and far, both friend and foe alike” – then the figures might be illuminating. According to the Office of the United States Trade Representative, the Philippines exported USD 14.2 billion worth of goods to the United States, and imported only USD 9.3 billion worth of goods. A trade deficit in our favor clearly is unacceptable for a president who believes America should be winning above everybody else.
Certain sectors will definitely be hit harder than others. More than half of our exports to the United States fall under HS code 85, “electrical machinery and equipment and parts thereof …” Engine parts. Cables. Other electrical components. Not the finished products themselves. We are part of complex global supply chains that produce gadgets, appliances, vehicles, and others. The tariffs would hit our manufacturing and semiconductor sectors hard, alongside exporters from mining and agriculture whose primary market is the United States – I’m thinking of, say, fruit products that appear on their supermarket shelves.
Trump’s hope is that the tariffs would force companies to move manufacturing to the United States, where the tariffs will not apply, which should lead to more jobs for Americans. Of course, his approach is like doing origami with a sledgehammer. It may be entertaining, but it’ll take years for some to see the intended effect, if it ever happens. I could not help but wonder if the United States has enough absorptive capacity to accommodate all the manufacturing the tariffs will displace, much more sustain them. Remember, outsourcing happened because costs in other countries are lower, and offset higher transport costs. Say, would American workers be willing to take those jobs, especially considering the government’s harder stance against immigration?
But again, what about the Philippines? The United States amounts to 15% of our export market, and while it’s not as big a proportion as some may claim, it doesn’t mean there won’t be pain. But we have other large export markets. China and Japan each received roughly USD 10.5 billion worth of Philippine-sourced items in 2023, according to data from the International Trade Centre. We also export heavily to Germany, Hong Kong (counted separately as a special administrative region of China), the Netherlands, Singapore, South Korea, Taiwan, and Thailand. Again, not all finished goods, but rather, a recognition of our part in intricate and complex global supply chains.
And we are continuing to expand trade relationships with other countries. Late last year a free trade agreement with South Korea took effect, providing greater access to that market for our agricultural products (and maybe, just maybe, our P-pop groups too). Negotiations are underway for FTAs with India, the United Arab Emirates, and the European Union. Our ASEAN membership has allowed us greater access to Australia, China, Hong Kong and New Zealand, and the bloc is currently in the midst of negotiations with Canada. And of course, our membership in the Regional Comprehensive Economic Partnership opens further windows for economic cooperation.
But they don’t provide enough reassurances. The biggest variable is in whether the countries heavily targeted by Trump’s tariffs will impose retaliatory tariffs, escalating a trade war that could upend global value chains. The uncertainty and unpredictability will spook the confidence of both investors and consumers.And in any case, again, we are part of intricate and complex supply chains. No matter what happens, we will not be able to insulate ourselves. Prices will rise. Confidence will go down. Maybe we’ll see stagflation again like five years ago? Our economy may heavily lean towards domestic consumption, but external pressures will break through at some point.
Whatever may happen, we should continue to prepare – and hang on for dear life. This will be a bumpy ride.