US President Donald Trump took the world by storm last week when he unveiled his wave of sweeping “reciprocal tariff” policy affecting nearly all countries across the globe, including America’s long-time ally — the Philippines.
A tariff is a tax levied by a government on goods entering its territory to generate revenues for the state.
It is also a mechanism used to regulate trade as well as to protect domestic industries by making imports more expensive, thereby encouraging purchase of locally made products.
For the Philippines, a 17% tariff would be slapped on its goods entering the US, steeper than the 10% “baseline tariff” to be applied on all imports into America from elsewhere around the world.
This means that Philippine-made products sold to the US would become 17% more expensive upon arrival there.
Nevertheless, the tariff rate to be applied on Philippine goods would still be a lower tariff compared to the average 34% rate that Manila charges against goods coming from the US.
Likewise, it was relatively narrower compared to its Southeast Asian neighbors with Brunei at 24%, Cambodia at 49%, Indonesia at 32%, Malaysia at 24%, Myanmar at 45%, Vietnam at 46%; with only Singapore to be charged the baseline 10% rate.
Trump had argued that the trading relationship between the US and its trading partners has become highly unbalanced, thus the higher tariffs would be targeted on countries that have significant trade imbalances with America.
In other words, the US chief is trying to level the playing field for American industries by “reciprocating” what other states are charging them for the goods they are selling in their countries.
US-PH trade in brief
Data from the Office of the United States Trade Representative showed that the US goods trade deficit with the Philippines stood at $4.9 billion in 2024, up 21.8% from 2023.
America's total goods trade with the Philippines amounted to about $23.5 billion in 2024, with US goods exports to Philippines amounting to $9.3 billion, up 0.4% while goods imports totaling $14.2 billion.
The US is the Philippines' top destination for its goods in 2024 at $58.7 billion, accounting for a lion’s share or 80.2% of the top 10 nations where its exports, according to data from the Philippine Statistics Authority.
Now, as many countries, including the Philippines and its ASEAN peers, expressed desire to negotiate, Trump announced a 90-day pause on the implementation of his reciprocal tariff policy.
How will Trump’s tariffs impact the Philippines?
Perhaps, those who would feel the pinch here in the Philippines are companies that ship goods to the US since their products would be 17% costlier for American buyers.
Trump’s sweeping trade policy also triggered worries of a US economic slowdown, which could pose risks to the Philippine economy via its exporters.
“The US is one of the Philippines' largest trading partners. A recession in the US could lead to reduced demand for Philippine exports, affecting sectors like electronics, garments, and agricultural products,” Union Bank chief economist Ruben Carlo Asuncion said.
“This would negatively impact the trade balance and potentially slow down economic growth. We have seen this in the last few months of 2024 and this is likely to be aggravated if a US economic slowdown does happen,” Asuncion said.
Rizal Commercial Banking Corp. chief economist Michael Ricafort, likewise, said that a slowdown in global trade resulting from America’s reciprocal tariffs “could reduce our local economic growth, with the hardest hit on exporters and their suppliers/workers.”
Philippine Institute for Development Studies senior research fellow John Paolo Rivera noted that Philippine exporters — especially those in electronics, garments, and agri-based goods — will feel the ripple effects of Trump’s 17% reciprocal tariff on the country’s exports as “this makes Philippines products less competitive in the US market, potentially leading to slower orders, slimmer margins, or job cuts in affected sectors.”
“Local businesses linked to global supply chains may also feel the pinch as trade frictions increase,” Rivera said.
Silver-lining
Despite this, Philippine economic authorities are keeping their cool even seeing the situation as an opportunity for the country’s economic future, banking on the relatively lower tariff rate to be imposed on Philippine goods compared to its peers in Asia.
In particular, Trade Secretary Maria Cristina Roque earlier said the Philippines can take advantage of this, saying that “direct impact may be less substantial compared to other ASEAN nations such as Vietnam with 46%, Indonesia with 32%, and Cambodia with 49%…”
Special Assistant to the President for Investment and Economic Affairs Frederick Go also brushed off the impact of Trump’s tariffs as this “opens up a lot of opportunities for companies that are based in the countries with higher tariffs to look seriously at investing in the Philippines to set up manufacturing facilities in the Philippines to take advantage of our relatively much lower tariff.”
RCBC’s Ricafort also said the higher tariffs imposed on ASEAN or Asian economies could still create some opportunities for some multinational companies to locate investments or production facilities in the Philippines "since it has one of the lowest US import tariffs."
Moreover, Finance Secretary Ralph Recto has said that the government is leveraging the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy (CREATE MORE) Act to lure more investors into the Philippines.
“The PH's economy is heavily driven by domestic consumption, which accounts for approximately 77% of total GDP (gross domestic product). This makes the Philippines relatively insulated from global trade disruptions,” Asuncion said.
How about us, ordinary Filipino consumers?
While it would be Philippine goods sold in the US that would become more expensive, ordinary consumers here might still bear the brunt of Trump’s trade tantrum.
“A significant portion of the Philippine economy relies on remittances from overseas Filipino workers (OFWs), many of whom are based in the US. A recession [in the US] could lead to job losses or reduced income for these workers, resulting in lower remittance inflows,” Asuncion said.
“This would affect household consumption, which is a major driver of the Philippine economy. On the flipside, we should stress that a majority of US-based OFWs are in either medical-, engineering-, or education-based jobs which are not likely to be affected by a recession. We have seen this during the pandemic and the impact may highly likely be subdued,” the Union Bank economist said.
Ricafort, for his part, said that Filipino consumers and other businesses would be affected by the trade wars and reciprocal tariffs elsewhere around the world, “in terms of higher prices passed on due to higher tariffs in the US and elsewhere around the world that retaliate/match higher US import tariffs.”
Apart from OFW remittances from the US, the business process outsourcing (BPO) industry in the Philippines is also exposed, especially those that serve US-based clients.
“While the impact might be less severe compared to other sectors, a prolonged recession could lead to reduced demand for outsourcing services as US companies cut costs,” Asuncion said.
“Or it could also flip the other way where companies will opt to outsource and save during difficult times and therefore PH may actually benefit,” the UnionBank economist said.
PIDS’ Rivera explained that while, for ordinary Filipino consumers, the direct effect may be “muted” at first, “if exporters lose income or scale back operations, this could dampen employment and spending power in key regions.”
What is the government doing?
Finance chief Recto and Trade chief Roque have already sounded the possibility of slashing tariffs levies on US goods, in a move to ease the impact of Trump’s tariffs.
Moreover, ASEAN trade ministers, including the Philippines’ Roque, are seeking dialogue with the US, expressing intent not to be retaliatory towards America.
Go is also flying to America to negotiate with the US Trade Representative, noting that a free trade agreement between Washington and Manila would be the best possible outcome of their discussion.
“Philippine policymakers would need to implement measures to mitigate these impacts, such as diversifying trade partners, supporting affected industries, and maintaining financial stability,” Asuncion said.
National Economic and Development Authority Secretary Arsenio Balisacan has said that the government will be vigilant regarding the potential implications of Trump’s tariff hikes.
“With or without the trade policy changes in the US, maintaining sound macroeconomic fundamentals, improving the ease of doing business, maximizing existing trade agreements, and forging new partnerships are still the most important strategies we can pursue to ensure that we protect the purchasing power of Filipinos and promote rapid, sustained, and inclusive growth,” Balisacan said.
Abdul Abiad, Asian Development Bank Economic Research and Development Impact Department director, earlier explained that the Philippines' exposure to the US would be about 3% of its GDP.
Abiad said the tariff increase “would imply a decline in US demand for Philippine goods of [around] 7.5% to 15%. That would be a decline of what part of Philippine GDP? The value-added exposure of the Philippines to US final demand is 3.4%… so you will lose seven-and-a-half to 15% of that 3.4% of your GDP. If you do the math, that comes out to a few tenths of a percentage point.”
Similar to what the government’s economic managers have stated, the ADB sees a potential production relocation to the Philippines due to its relatively lower US tariff rate compared to its neighbors in the region.
“Economists and other analysts suggest that monetary easing and increased public spending will further support economic growth amidst uncertainty of a potential US recession,” Asuncion said.
“Another important aspect of Philippines trade policy during these times would be to stick with the ASEAN+3 and make sure that no decisions are made based on emotions but on rationality and rules, especially dealing with the reciprocal tariffs. The 90 day pause is a good time to work, adjust and collaborate,” the UnionBank economist said.
Rivera said that, on the macro level, the economy could face downward pressure on exports and investment especially if uncertainty causes firms to delay expansion plans.
“Overall, this underscores the need for stronger trade resilience whether through diversification of markets (e.g., in ASEAN, RCEP, EU), upskilling the workforce, or pushing for bilateral trade deals that protect our key industries,” the PIDS economist said.
