THE PHILIPPINES is one of the economies in Asia that might face challenges from the spillover impacts of US President Donald J. Trump’s proposal to implement reciprocal tariffs on trade partners, analysts indicated.
A report from Nomura Global Markets highlighted that emerging Asian nations have elevated tariff levels on US exports, “thus at risk of greater reciprocal tariffs.”
“More than 90% of the exports from India, the Philippines, Thailand, and China (destined for the US) carry higher relative tariff rates and are therefore the most vulnerable to escalating reciprocal tariffs,” stated Nomura Global Markets Research in a document.
Data from Nomura revealed that every Philippine export to the US could potentially encounter increased tariffs, which accounts for 2.6% of gross domestic product (GDP).
On Monday, Mr. Trump noted he would reveal plans to impose reciprocal tariffs on other nations within the next two days, as reported by Reuters.
Mr. Trump made this declaration following the signing of two proclamations that removed all exemptions on steel and aluminum tariffs initially enforced during his first term, boosting duties on both metals to 25%. (Read related story “In latest trade war salvo, Trump raises tariffs on aluminum, steel imports”.)
Mr. Trump stated he was also considering tariffs on automobiles, semiconductor chips, and pharmaceuticals.
Reciprocal tariffs would imply that the US enacts the same tariff rates on imports from other countries as those countries impose on US exports.
Leonardo A. Lanzona, an economics professor at the Ateneo de Manila University, indicated that “tit-for-tat” approaches can “trigger disruptions in global supply chains, consequently resulting in increased prices for all traded commodities and services.”
“Given that China is a primary provider of intermediate goods and consumer items for the Philippines, any disruption or price increase due to tariffs or retaliatory actions could escalate production costs for Philippine firms,” he mentioned in an email.
“This might in turn lead to inflation or compel businesses to seek alternative (and potentially more costly) suppliers,” he added.
China typically represents the Philippines’ largest source of imports, whereas the United States stands as the nation’s leading destination for exports.
“Moreover, the United States is a crucial market for Philippine exports. Should trade tensions between the US and China impede the US economy or provoke broader global economic instability, demand in the US could diminish,” remarked Mr. Lanzona.
“This would adversely impact Philippine exporters, particularly in sectors such as electronics, textiles, and agricultural goods,” he further noted.
Nomura mentioned it is uncertain whether Mr. Trump would impose heightened reciprocal tariffs sector by sector or universally.
“If Trump opts for a sector-based approach, even nations with lower weighted average tariff rates might face elevated tariffs in certain sectors,” stated Nomura.
“We anticipate Asian economies to intensify their discussions with Mr. Trump,” it continued.
Nomura’s data revealed that the Philippines maintained a 3.3% weighted average effective tariff on US exports to the Philippines against a 1.4% tariff rate on Philippine exports to the US.
A significant portion of Philippine exports to the US consists of machinery and electronics, comprising 67% of total exports.
Nomura observed that many developing Asian nations apply elevated tariffs on agricultural products and transportation.
However, Philippine exports of agricultural and transport products to the US are substantially lower than its neighbors, accounting for only 0.2% and 0.1% of gross domestic product (GDP), respectively.
Nomura identified sectors with higher relative tariff rates, including plastics and rubber for the Philippines, and footwear and various manufacturing for Thailand.
It stated that Thailand is predicted to be the “biggest loser” in Southeast Asia due to its high exposure to agriculture and transportation.
“Agricultural exports to the US account for 0.8% of Thai GDP, with transport products making up an additional 0.5%.”
Conversely, Indonesia, Malaysia, and Vietnam are seen as being in the “middle tier,” while the economies with the least exposure in the region are Singapore and South Korea.
Mr. Lanzona indicated that the government must formulate strategies to mitigate the economy from shocks arising from the tariff regime, such as pursuing trade agreements, offering support to affected sectors, or investing in local production.
“Most importantly, by promoting products that can be manufactured domestically, the country may reduce its dependence on imported components — especially from countries like China — thereby diminishing vulnerability to external trade disruptions,” he emphasized.
“Bolstering domestic production can facilitate the establishment of more resilient, locally managed supply chains that are less prone to international tariff disputes or global market variances.”
FX PRESSURES
Meanwhile, ANZ Research in a distinct report highlighted the repercussions of tariff policies on currencies in Asia.
“Unless there’s an imminent relief rally in Asia’s regional markets, the threat of trade tariffs will persist over Asian economies,” it stated.
“Market stress is evident through increased demand for FX (foreign exchange) hedges and safe-haven assets. Asian FX will remain the fragile link in an atmosphere of escalating trade tensions and declining domestic growth momentum,” it remarked.
ANZ indicated that currencies represent the “main transmission channel to observe” as regional currencies are vulnerable to a China-US trade conflict.
“The resulting risk-off sentiment from heightened trade tensions would also support safe-haven demand for the US dollar. We believe no Asian FX markets would be significantly spared in a US-China trade conflict,” it added.
The peso concluded at P57.845 against the dollar at the end of 2024, depreciating by P2.475 or 4.28% from its end-2023 rate of P55.37. — Luisa Maria Jacinta C. Jocson
