Working around U.S. policy shifts

Senate President Francis “Chiz” Escudero has cautioned the Marcos administration to be ready for policy changes that will presumably be enacted by President-elect Donald Trump upon his assumption to office. Escudero has voiced valid concerns about the future of the Philippines under a second Trump presidency, citing economic upheaval and diplomatic realignments as examples.

The economic effects of Trump’s policies, especially his trade and tariff policies, are Escudero’s principal areas of interest. Given the robust trade links between the two nations, the senator is quick to point out that Trump’s stated policies, such as slapping tariffs on foreign goods, might significantly harm the Philippine economy.

Like many other countries, the Philippines depends substantially on the American market for its exports. In fact, America accounts for about 14 percent of the Philippines’ overall export profits.

Nonetheless, over the years, the Philippines has broadened its trade ties beyond the US, particularly with countries in Southeast Asia and China. The Regional Comprehensive Economic Partnership (RCEP), signed in 2022, strengthens the Philippines’ economic ties with countries like China, Japan and South Korea.

These trade agreements can act as buffers against potential losses from US tariffs. In the case of Mexico and Japan, both of which were affected by Trump’s tariffs during his first term, they found ways to adapt, such as diversifying their supply chains and securing trade deals with other countries.

Escudero, however, may have sound reasons to warn that a stronger dollar may harm the Philippine economy. While it’s true that remittances from overseas Filipino workers (OFWs) could increase in value with a stronger dollar, the flip side is that a stronger dollar also means a weaker peso. A weaker peso would raise the cost of imports, which could be detrimental to businesses and consumers in the Philippines who rely on foreign goods and raw materials.

The Philippines imports a significant amount of oil, machinery and other goods, and a weaker peso means higher prices for these imports. This could lead to higher inflation, as the cost of goods and services will rise, ultimately eroding the purchasing power of many Filipinos.

Likewise, the Philippines has foreign debt that is partly denominated in US dollars. A stronger dollar means the peso is worth less relative to the dollar, and as a result, the country’s foreign debt becomes more expensive to service. For example, if the government or corporations have debt in dollars, the weakening peso will make it costlier to pay off these obligations in local currency terms.

This could strain the government’s finances, as more of its budget would go toward servicing debt rather than investing in public services or infrastructure. In the worst-case scenario, this could lead to higher taxes or reduced public spending.

A stronger dollar may make Philippine exports relatively more expensive for foreign buyers. While this may seem like a benefit to export markets (since the Philippines’ goods are priced in pesos), a stronger dollar means that those goods become pricier when converted to foreign currencies. This could also reduce the competitiveness of Philippine-made goods in the global market.

Regarding Trump’s immigration policy, the Senate president voiced worry about the consequences for the estimated 300,000 Filipinos now residing in the US without proper documentation. He points out that deporting even a small number of Filipinos could cause a humanitarian and logistical crisis, since thousands could be flown back to the Philippines on chartered flights.

Still, government entities, including the Department of Foreign Affairs, probably know what could happen and already have strategies to deal with it. The bigger issue would be how those repatriates could be assimilated so as not to join the ranks of the unemployed.

Some intriguing questions have been raised also about the future of the Philippines’ military partnership with the United States under Trump 2.0. The US-Philippine relationship, however, has longstanding institutional foundations that are unshakeable and independent of presidential whims.

The larger strategic goals of the United States and the Philippines in preserving peace in the region and resisting Chinese aggression will likely remain largely unchanged, notwithstanding Trump’s words, even though his policies may cause some temporary friction.

When it comes to handling its relationships with China and the United States in particular, the Marcos administration has proven over and again that it can successfully traverse changing geopolitical landscapes.

Although Escudero’s tone of caution is reasonable, the Philippines can utilize diplomacy, alliance diversification, or recalibrate its economic strategy to soften the blow of any major policy changes in Washington.