MANILA, Philippines — As higher tariffs loom for Philippine goods entering the US, calls to diversify the country’s export markets and reimagine how it competes on the global stage are becoming more urgent.
US President Donald Trump’s sweeping tariffs are causing uncertainty globally and businesses are anxiously waiting for what will happen next.
For the Philippines, the US tariffs are not just a disruption. It’s a wake-up call to step up and renew its exports push.
Following his meeting with President Marcos, Trump announced on July 22 that a 19 percent tariff will be imposed on Philippine goods entering the US.
As part of the deal with the US, the Philippines will be removing the tariff on American automobiles and increasing its imports of US soy products, wheat and pharmaceuticals.
Special Assistant to the President for Investment and Economic Affairs Frederick Go and Trade Secretary Cristina Roque, who were part of the delegation to negotiate to bring down the tariff, said the negotiators still have to work on details to finalize the agreement.
The new tariff rate for Philippine exports to the US is lower than the earlier announced 20 percent but higher than the 17 percent reciprocal tariff proposed back in April.
The 17 percent tariff is the second lowest in Southeast Asia, next to Singapore’s 10 percent.
At present, a baseline 10 percent tariff is being applied on exports to the US, including those from the Philippines, while the negotiations are being conducted.
With the 19 percent tariff, the Philippines still has the second lowest rate in the region after Singapore.
Former tariff commissioner George Manzano said the new levies announced by the US show that the Philippines’ advantage over its neighbors may not last.
A trade deal between the US and Indonesia has led to the lowering of the 32 percent tariff on the latter’s exports to 19 percent.
As part of the agreement, Indonesia has committed to purchasing 50 Boeing jets, $15 billion in US energy supplies and $4.5 billion worth of agricultural products.
A trade deal struck with Vietnam will also reduce the 46 percent tariff imposed by the US to 20 percent.
Philippine Exporters Confederation Inc. (Philexport) president Sergio Ortiz-Luis Jr. said that after the US reciprocal tariffs announcement in April, some exporters have opted to adjust their prices to include the levy.
Foreign Buyers Association of the Philippines (FOBAP) president Robert Young said some exporters of soft goods like garments and hard goods like furniture and housewares, have been sharing the costs of the tariff with US buyers.
He said exporters are also pushing out or rushing shipments to the US to beat the new tariff rate that will take effect on Aug. 1.
While the Philippine economy is less reliant on exports than its regional peers and semiconductors — the country’s top exports, are largely exempt from the US tariff — Manzano said the higher levy would take a toll on other exports such as leather goods, bags, coconut-based products, fruit preparations and garments.
As these products currently benefit from minimal duties in the US market, the tariff would significantly raise their landing costs and hurt competitiveness.
Manzano said trade diversion is also an emerging threat as countries enjoying lower US reciprocal tariffs may begin to displace Philippine exports in key sectors.
Philippine Institute for Development Studies senior research fellow John Paolo Rivera said the higher tariff imposed by one of the country’s top export markets, may also potentially reduce revenues and place thousands of jobs across supply chains at risk.
Last year, the US accounted for the biggest share or 17 percent of the Philippines’ total merchandise exports.
In this situation, economists are of the view that the best approach for the Philippines is to negotiate and pursue diversification of export markets.
Manzano said the Philippines could offer greater market access to US exports, particularly in agricultural and energy products during the negotiations.
“Like Indonesia, we may also need to make specific purchase commitments such as the acquisition of Boeing aircraft,” he said.
For Rivera, the government should ask for exemptions to mitigate the impact of the higher tariff especially for vulnerable sectors.
While the government still hopes to reduce the 19 percent tariff, Roque said it will protect major agriculture and manufacturing industries.
She said the US was asking for zero tariff for all its goods entering the Philippines.
“We cannot give the agriculture. The sugar, the rice, we cannot give that,” Roque said.
Given the very limited fiscal space to directly support the affected export sectors, Pantheon Macroeconomics chief emerging Asia economist Miguel Chanco said the government can accelerate free trade agreement (FTA) negotiations with a market like the European Union (EU).
He said the EU “is basically the only other major developed market left that the Philippines doesn’t have an agreement with.”
Manzano said the FTA with the EU should be prioritized as part of a broader strategy to reduce the country’s vulnerability to shifting US trade policies.
Gepty said the Philippines and the EU are set to hold the next round of FTA talks in October.
There have been three rounds of FTA negotiations between the Philippines and the EU since talks resumed in October last year.
Apart from the EU, Rivera said Philippine exporters also need to tap into existing trade deals like the Regional Comprehensive Economic Partnership Agreement and FTAs with the Association of Southeast Asian Nations (ASEAN).
“Focus should be on high-growth, less tariff-restrictive regions like ASEAN, the Middle East, India and parts of Africa,” he said.
He said strengthening ties with Japan and South Korea, which both have bilateral trade deals with the Philippines, will also be strategic given their demand and trade openness.
Aside from FTA talks with the EU, the Philippines is also working on a trade deal with the United Arab Emirates.
As part of efforts to diversify trade markets, the Philippines has started FTA talks with Chile.
There are also exploratory talks for a possible FTA with Canada and plans to apply to be part of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.
While Philexport recognizes the need to diversify export markets, Ortiz-Luis said it is easier said than done.
He said there have been calls to diversify export markets even before Trump’s reciprocal tariffs, but the sector has not been given enough support by the government.
Calls to diversify export markets also gained traction during the pandemic, which exposed vulnerabilities in supply chains.
“It is hard to diversify if there is no fund to support the sector,” Ortiz-Luis said.
He said the budget allocated to the Department of Trade and Industry (DTI) to support export promotion efforts is very small compared to other countries in the region.
“One of the things the government has forgotten is to think of export as an investment and not as an expense,” he said.
FOBAP’s Young said their group is currently looking for opportunities in alternative markets to the US.
“We are eyeing Russia, as well as the ASEAN neighbors,” he said.
He said the FOBAP, being in the trade for 40 years, has engaged with many countries including Australia, Canada and the Middle East.
For exporters to diversify and enter new markets, Rivera said the government will need to provide support.
“Support is needed to help MSMEs (micro, small and medium enterprises) meet market standards and access distribution channels in new markets,” he said.
He said export firms also need support in terms of export financing, retooling programs and market intelligence.
To help exporters penetrate new markets, DTI – Export Marketing Bureau director Bianca Pearl Sykimte said the agency is proposing an annual allocation of P200 million in the national government budget starting next year until 2028.
She said the amount is intended to help exporters secure the necessary certifications to access markets.
“There are certain rules that we need to comply with to be able to access or export through FTAs,” she said, noting that exporters have to satisfy the rules of origin criteria by proving that their products are largely made in the Philippines.
To make it easier for exporters to take advantage of FTAs, she said the DTI recently launched the FTA information portal, which includes basic information on trade terms and how to access markets.
Efforts are also underway to streamline and automate the process to be fully compliant with FTA or trade preference scheme requirements through an origin management system.
In addition, she said the DTI has other projects in the pipeline with development partners to support exporters.
Through the ARISE Plus Philippines funded by the EU, the DTI is helping exporters take advantage of EU market access and the trade privileges granted under the Generalized Scheme of Preferences Plus.
World Bank lead economist Gonzalo Varela said undertaking reforms to cut investment and trade costs could help compensate for barriers that the Philippines may face in international markets.
In particular, reforms can be undertaken in relation to streamlining regulations.
“It takes 106 days for a foreign company to set shop in the Philippines compared to 15 (days) in Singapore. That adds to investment costs. That is not imposed by others, that’s a policy decision that can be made in the Philippines to simplify that process,” Varela said.
As the US reciprocal tariffs prompt a recalibration of the country’s export strategy, Ortiz-Luis expressed hope that the sector will receive the support it needs.
“Let’s concentrate, once and for all, to really develop exports. Let’s take it seriously,” Ortiz-Luis said.
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