Donald Trump’s ‘Liberation Day’ tariffs have unleashed new uncertainties on economies across the globe. Yet, it’s not too late to build a resilient and responsive economy. The tools at our disposal are obvious, but the need to use them now has never been greater.
Written by Henrik Batallones
By the time you read this, things may have settled down. Or they haven’t, and things have gone into some degree of overdrive we haven’t seen before. But, hey, that was a crazy past few months, wasn’t it?
I’m referring to the turbulence that unfolded in the last few months across the global economy, caused not by a warming climate, or military conflict, or technological upheaval—although they certainly played a role—but by a long-anticipated announcement by United States president Donald Trump.
On April 2, Trump, depending on how you see things, either went very close to declaring a trade war, or started one outright. He signed an executive order imposing “reciprocal tariffs” on virtually every country around the world, in a bid to balance the United States’ trade deficit, bring manufacturing back to American shores, and reduce the country’s dependence on foreign economies. Or, in the president’s typically grandiose language, it’s a response to decades of the country being “looted, pillaged, raped and plundered by nations near and far, both friend and foe alike”.
What has since been called his “Liberation Day tariffs”—Trump considered the announcement an important day in American history—has reverberated throughout the world. A baseline tariff of 10% was imposed on every country and territory in the world, with higher rates reserved for countries that have sold more to the United States than it has bought, and are allegedly imposing non-monetary tariffs on American goods while the other side reduced barriers to trade.
The criteria turned out to be more arbitrary (and possibly generated with the help of LLM tools) than thought, but the pattern seems clear: countries that are home to a large manufacturing base that produces goods bound for the US, such as China, Vietnam and Cambodia, were slapped the highest rates, as well as countries that specialize in certain resources and sells a large amount of it to the United States, like Lesotho, a major source of diamonds. The Philippines, which produces electrical components and semiconductor parts for many American firms, was itself slapped with a 17% rate.
Trump kept open the door for countries who are willing to renegotiate deals with the United States, presumably ones that are more favorable to the global superpower. But while he claims that many countries have taken that route, others have held their ground. It soon became clear that the president’s ultimate target remains China, with whom he started a similar tariff war during his first administration; American tariffs on that country went as high as 145%. But the announcement rattled even the US’ traditional allies, with the European Union and the United Kingdom—whose ties were severed by the Brexit movement in 2016—attempting a reboot, and Canada seeing a swell of nationalist sentiment that even led the floundering Liberal party, now led by former banker Mark Carney, to a resounding victory in its recent elections.
These recent events have got me thinking about the Philippines, another country with close ties to the United States, historically and economically—and where those very ties have also been used as a tool, or perhaps a cudgel, for political advancement. At one point it was claimed that our economy is incredibly reliant on our former colonizers, although the truth is far more complex than that. In any case, the last few months have got policy makers and ordinary citizens thinking about whether we can withstand turbulence like this. Sure, these are familiar questions; we faced very similar ones during the COVID-19 pandemic, and we got out of that intact, if not held back by the very disruptive early days of the disease. But with lessons learned from the past, and a better understanding of our present, it’s worth asking again: how can we turbulence-proof our economy?
Historically, the economies of the Philippines and the United States have been close, thanks in part to the former’s past status as a colony, as host to the latter’s military bases, and as a preferred partner in certain goods like sugar. But, while the United States remains one of our biggest economic partners, it is not a dominantly large one, unlike the characterization of former president Rodrigo Duterte.
It is true that the United States is our biggest export market. In 2024, according to data compiled by the International Trade Centre, we exported USD 12.12 billion worth of products to them, making up roughly 16.6% of our total exports. But if this was a race, it’s close. Our second largest trading partner, Japan, received USD 10.25 billion worth of our products the same year—roughly 14.1% of our total exports. Rounding off our top five export markets are Hong Kong, China and South Korea. (While Hong Kong is technically a special administrative region of China, it is counted separately in these statistics.)
If Trump’s characterizations are to be believed, the Philippines has been “looting and pillaging” the United States because it is selling more to the country than it is buying. Sure, they are only our fifth largest import market—we bought USD 8.85 billion worth of products from them in 2024, or roughly 6.6% of our total imports—but this is mischaracterizing the nature of trade between our countries, and indeed, the nature of most global trade. To illustrate, our biggest export to the United States are not finished goods, but rather, components such as engine parts, cables and other electrical parts—components that are essential in putting together products such as vehicles and electronics, whether in the United States or elsewhere.
To further illustrate, our biggest imports from the United States are the very same electrical parts and components. It is safe to assume that these parts are further developed and assembled here; we import about USD 2.34 billion worth of products that fall under HS code 85, and export USD 6.29 billion worth—we add value. This indicates the strength of our country’s manufacturing sector as part of global value chains, although I understand the vision of the Philippines making finished goods has been excessively idealized to an extent.
Despite this, the Philippine economy is still very much reliant on imports. In 2024 we brought in USD 134.88 billion worth of goods, and brought out only USD 72.98 billion worth. While the aforementioned electrical parts remains our biggest category on both sides of global trade—and indeed, as in the United States, we export a higher value of said products than we import—most of our imports are for local manufacture or consumption, including cereals, mineral oils, vehicles, and to a lesser extent, pharmaceutical products and animal products. Most of our imports come from China; in 2024 we bought USD 34.5 billion worth of goods—mostly electrical and mechanical parts, but also oils, steel, plastics, and perhaps most notably, cars. Completing our top five import markets are Indonesia (most of which Japan, South Korea, and the United States.
All this is made possible by the many strides made over decades that enabled and furthered global trade, from the advances made in the shipping industry, to the bilateral and multilateral trade agreements that allow for relatively frictionless movement of goods and services alike. The Philippines, whether by itself or as a member of the Association of Southeast Asian Nations (ASEAN), has taken advantage of these free trade agreements to expand its options for both import and export, and position itself as a key component of global value chains.
As of this writing, the Philippines has three active FTAs that it negotiated on its own: the Philippines-Japan Economic Partnership Agreement, signed in 2006; the Philippines-European Free Trade Agreement, involving members of the European Free Trade Association (Iceland, Liechtenstein, Norway and Switzerland) signed in 2016; and most recently, the Philippines-Republic of Korea Free Trade Agreement, signed in 2023. All these agreements aim to promote trade and investment on both sides by reducing tariff and non-tariff barriers, encouraging human resource development and stabilizing regional supply chains.
On top of these, our ASEAN membership has unlocked further trade relationships with our closest neighbors. This primarily comes through the signing of the ASEAN Trade In Goods Agreement (ATIGA) in 2010, which promotes trade and economic integration among the ten member countries of the association. The ASEAN also signed FTAs with China (its first, in 2002), South Korea, Japan, India, Australia and New Zealand. In addition, the Regional Comprehensive Economic Partnership (RCEP), signed in 2020, further brings together these countries—with the exception of India, who were initially part of negotiations but pulled out over concerns for its own pharmaceutical sector.
As of 2024, ASEAN comprises roughly 33% of our total imports and 22% of our exports. In addition, our membership to RCEP makes us part of the world’s largest trade bloc, comprising about 30% of the world’s population and 30% of total global gross domestic product. Our economy may be reliant on imports, but we are still pretty well-positioned as part of global value chains.
Outside of trade agreements, the Philippines is part of several generalized system of preferences (GSP) agreements with other countries that allow certain goods and products less-restricted access. As of this writing, certain Philippine products are benefiting under GSP agreements with the European Union, Canada and the United Kingdom, primarily those coming from our agricultural and electronics sectors. (Our GSP status with the United States is currently under review, and as such we are not receiving any of its potential benefits.)
The Philippines is seeking to expand on existing GSP agreements as it negotiates or studies free trade deals with the EU and Canada, the latter as part of a proposed FTA with ASEAN. We are also negotiating FTAs with Chile, India and the United Arab Emirates, and are also studying proposals for FTAs with Mexico, as well as between ASEAN and Russia, and another one between ASEAN and members of the Gulf Cooperation Council, which includes Qatar and Saudi Arabia.
It is this complex web of bilateral and multilateral agreements and preferences that Trump is, unilaterally, trying to rip apart, in favor of his own simplistic view of how economies should work, and his even more simplistic view that the United States should win above everybody else, at all costs. It’s not the first time he has done it: apart from the aforementioned initial trade war with China during his first term, he also led the ripping up of the North American Free Trade Agreement (NAFTA), signed in 1992 between the US, Canada and Mexico, in favor of the United States-Mexico-Canada Agreement (USMCA) signed in 2019—the very trade deal that could be torn apart by his current round of “Liberation Day” tariffs.
Trump’s argument is that these tariffs would encourage global firms to relocate their production facilities to the United States so they can avoid paying tariffs, providing jobs to the American heartland and reviving the country’s manufacturing sector. Perhaps he was thinking it would happen almost instantaneously, considering the initial short notice he provided between announcement and implementation of the first round of reciprocal tariffs—which, by the way, comes on top of tariffs specifically aimed at certain products coming into the United States.
Offshoring and reshoring take years of planning and implementation, and is dependent on whether the countries involved are competitive enough to provide the firm with the same level of quality and service at an optimal cost. These costs include capital and operating expenditures, such as salaries, power and acquisition of facilities and equipment, as well as logistics and trade costs, especially if a company produces for a primarily global market. Indeed, countries attempt to lure major names to their shores through the competitiveness of their position in global supply chains; the availability of talent, whether local or from neighboring countries; and in many cases, tax incentives and cuts.
Another reality that Trump has not taken into account: the nature of manufacturing has changed massively over the last few decades, certainly a lot since the time when the United States was a production superpower, which was roughly at the end of the second World War. A lot of that talent has since gone, with the American economy moving to a mostly service-based one, and manufacturing moving to countries with relatively cheaper labor like China and Vietnam. 21% of companies surveyed by CNBC last month state that finding skilled labor in the United States is a significant hurdle, and while they likely are available in certain sectors—just look at the recent AI gold rush that triggered runaway profits for chip manufacturer Nvidia—there isn’t a market, nor an appetite, for more manual tasks like assembly. Remember one of the Chinese’s government’s responses to US tariffs—an AI-generated illustration of workers from middle America assembling iPhones? An unimaginable sight, and most likely an ego-bruising one for some.
The nature of manufacturing also continues to change, as automation takes a deeper hold of every aspect of our supply chains, and improvements in application of artificial intelligence mean some tasks we take for granted will soon be taken over by technology. And these advances are not limited to the most powerful countries: one of the defining qualities of emerging technologies is how it provides greater access even to smaller entities with a limited budget.
Trump’s moves, clearly based on an idealized vision of the United States back when it was “better”, is instead resulting in global firms looking for countries with low tariffs and trade barriers to relocate to, if they are indeed planning to relocate away from the likes of China. And while the US government pussyfoots one way or another towards tariffs—or the president’s ego gets satisfied with his imagery of countries “begging” to do a deal with him—the cost of living in the United States starts to suffer, with costs going up and certain businesses finding it impossible to operate under the circumstances. On this front, we may only be seeing the beginning of the effects.
While some sectors in the Philippines will certainly be affected—our semiconductor industry, responsible for most of our exports, is very closely tied to the US economy—I believe that our trade links with a wide range of countries, especially our Asian neighbors, means the impact will be less pronounced. But that does not spare us from everything: we are still subject to negative global sentiment, and there could be an effect on remittances from abroad, if those economies are impacted hard by the tariffs.
In any case, the challenge posed by the events of the last few months remains: how do we turbulence-proof our economy?
One obvious way, of course, is to make our country friendlier to foreign investment, particularly now that countries looking to leave behind rising costs in China and rising tariffs in the United States are potentially on the lookout. While the Philippine government has introduced several schemes to attract foreign firms to our shores, the picture remains complex, with high energy and logistics costs, as well as our vulnerability to natural calamities, remaining as roadblocks. That said, it has not stopped certain manufacturers from considering the Philippines as part of their global value chains.
Also, recent market liberalization laws have seen the entry of new retailers and brands to our high streets, with additional incentives provided to those who commit to selling a certain percentage of Filipino-made products or hiring Filipino workers. Finally, the case is being made for the Philippines being an ideal investment destination because it was slapped with relatively lower reciprocal tariffs, at 17%, than some of its neighbors—and it has space to accommodate new entrants unlike, say, Singapore, which has only 10% tariffs but could not conceivable be a manufacturing hub because of its size.
Which leads to another obvious answer: continue investment in the facilities and infrastructure that enables and facilitates both local and foreign value chains. The government and private sector should continue developing the country’s transport, energy and Internet infrastructure—ports and roads, renewable power plants and transmission lines, cable landings and common towers—and ensure they are future-proof. This is both to, obviously, increase our competitiveness in relation with our neighbors, making us a strong destination for both local and foreign firms. This also allows domestic players to better take advantage of the Philippines’ trade agreements, as competitive logistics can make or break a firm’s attempts to enter new markets.
This investment should also be extended beyond physical structures.Spending on social programs may not be the most supply chain thing to think about, but it is still spending that contributes to our economy’s total performance, and can help bridge what is available to who needs it the most. And it’s this kind of spending that would definitely come in handy when those negative economic vibes get overwhelming and crash global markets. Indeed, continued public investment should buoy our economy from a possible recession, or even a depression, especially considering the Philippines’ status as a consumption-led economy.
Improving our supply chain networks, both from a physical infrastructure and regulatory approach, would also help firms diversify their sources and markets. Already some major firms are looking towards neighboring countries for raw materials and even manufacturing capacity, taking advantage of trade agreements to minimize costs while keeping the quality of products the same for consumers here. Further opportunities lie ahead here, of course, in line with the current administration’s thrust to strengthen self-sufficiency in food, for example. Interventions should not be limited to the movement of goods, but also to the production of raw materials and other components. Local firms will be more resilient and turbulence-proof if they are able to source for raw materials competitively within our borders. But, again, this takes multiple simultaneous approaches and should be supported by a unified government and private sector, with no mind for defending their own turf, and instead committing to common goals.
By the way, since Trump has visions of a United States that’s dominant everywhere, I feel compelled to make a case for telling a better story about our own products. This, compared with greater access enabled by stronger supply chain networks and competitive manufacturing, could allow us to better establish our own strengths, at least in our neighboring countries, to begin with. I remember a former colleague, based in Singapore, complaining to me about how we hoard the best mangoes for ourselves and sell the “bad” ones to them. Surely something is lost in quality during transport, but in any case, the reputation of our produce is pretty strong elsewhere—and we can leverage on that to make not just that sector, but our entire economy, more competitive. I mean, think of K-pop, and how that’s an economic juggernaut, and what those songs say about an entire country, and not just the idols that perform them and the ecosystem that develops them.
And since I mentioned K-pop, there are opportunities here for our creative sectors too, to provide a meaningful contribution to our economy… of course, with the right support. We should not underestimate the potential of soft power and our cultural exports.
It’s hard to say where we are heading from here. It’s likely many things have happened between the time I finish writing this and the time you read this. Maybe there’s a pause in the tariffs—or maybe there’s an even more drastic escalation. Nobody can be certain. But we do know that to chart a way forward, we should be able to weather any turbulence, and by focusing on the fundamentals, we can keep our ship steady and rise above the waves. It may take a long time, but as we saw with the United States that Trump looks back on with rose-tinted glasses, the pay-offs can be great—and if we remain responsive to the changes, the pay-offs will continue.