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 explores the potential impact of a second Trump presidency on local supply chain competitiveness.
A delicate dance
It’s somewhat ironic that there’s not a lot of certainty about the impact of a second Donald Trump presidency on the Philippines, at least from a supply chain perspective.
Sure, we have seen his tendencies and priorities during his first term from 2016 to 2020. We know his America first leanings, and how it has impacted the country’s economy. We know how his bluster has left other governments guessing. Still, there’s not a lot of certainty. Maybe it’s because of alarmist reporting, or of the polarized political discourse in the United States and beyond, especially in the last few months. Maybe it’s because the world since he left the presidency (although he did try to cling on to it) has changed significantly, notably conflicts in Europe and the Middle East, and the looming of a potential wider conflict in the Asia Pacific.
So, what can we expect from a Trump presidency?
The news of a Trump victory has boosted the markets, perhaps gleeing at the possibility of decreased regulation and potentially higher profits. If that means a stronger dollar, it will definitely impact the whole world, especially import-reliant countries like the Philippines. A stronger dollar means increases in the costs of energy, major commodities, and even in logistics costs, where there will be a knock-on effect. Major importers, particularly of raw materials, could be forced to increase prices, providing additional inflationary pressure to consumers.
Exporters wouldn’t be so lucky either, as Trump has promised high tariffs for products brought into the United States, in a bid to spur local production and investment. For us, it means tariffs on over USD 12 billion worth of goods. This could impact certain players in agriculture as well as industrial products and electronics.
While the United States is our biggest export market, it isn’t by much, as China is a close second. But that isn’t any assurance that we are somewhat insulated from the impact of a potential global trade war. If other countries respond to Trump’s tariffs by imposing tariffs on American products entering their shores, the end result would be further inflationary pressures. There could be a medium-term disruption to global trade, as companies scramble to mitigate the impact of these tax increases – perhaps by shipping to the US via friendlier countries? – which could mean an increased demand for spaces in ships, and possibly some degree of port congestion. And definitely increased logistics costs as well.
There is, however, another front where Trump’s second presidency can have an impact. In the last few years the United States took a more active role in the Asia Pacific region, to blunt Chinese hegemony. These efforts began under Barack Obama but took a back seat under Trump, before resuming tentatively under Joe Biden. For the Philippines, this means a pledge from the American government to support improvements in connectivity, particularly through the mooted Luzon Economic Corridor, which seeks to better connect the major ports of Subic, Clark, Manila and Batangas – and, also, to provide the US with a stronger alternative to offshore production in China. Could this initiative – which so far is in the shape of a rail link between those four ports – be in jeopardy?
This leads us to a question I don’t really want to ask out loud: what would a Trump presidency mean for the US-China rivalry? Observers are still watching the possibility of Taiwan becoming a geopolitical flashpoint; I would extend that and look at the South China Sea, which the Chinese government claims almost wholly for themselves. The new American government would have to be delicate in ensuring that a major shipping trade route isn’t disrupted by conflict – a conflict that, I should remind you, will affect us in the Philippines more directly than we admit.
Our own policy makers also have a delicate juggling act to do. President Bongbong Marcos has pivoted the country back to the United States after his predecessor’s keenness for a stronger relationship with China. How can our government advocate for our best interests in front of a transactional leader?
As for us in the private sector, we can take heart in the fact that our economy isn’t as reliant on the United States as some make it seem. Strong domestic consumption can see us through, and increased investment in infrastructure can boost it further. But we also still have a delicate dance to make. Ironic, somewhat, how we don’t quite have the answers despite having a repeat of 2016.