The bourse index slid following US President Donald Trump’s Liberation Day tariff offensive in which the Philippines was slapped with an additional 17 percent charge. Still, the peso closed firmer against the US dollar on Thursday.

The Philippine Stock Exchange index (PSEi) declined by 1.63 percent to 6,145.73, while All Shares fell by 1.1 percent to 3,664.41.

“The local market was brought down this Thursday by 1.63 percent to 6,145.73 as investors dealt with the US’ latest tariff announcements, including a 17 percent tariff against the Philippines,” Philstocks Financial research manager Japhet Tantiangco said.

“Sentiment towards the global economy was dampened by the expected negative consequences of the US’ reciprocal tariffs.”

The peso, meanwhile, strengthened, closing at 57.095 to the greenback from the previous day’s 57.215. It opened at 57.25 and traded between 57.06 and 57.275.

Backlash not a worry

Economist-lawmaker Joey Salceda shrugged off the move as not posing a direct challenge to export competitiveness.

Salceda, the House Committee on Ways and Means chairperson, asserted that the US slapping a 17 percent “reciprocal tariff” on the Philippines is not the “biggest hindrance” to the growth momentum but the cost of doing business and electricity prices.

“We need to continue making strides in this area. The incentives under the CREATE MORE Act, especially the increased power cost deduction, help address these issues,” he said.

Electricity costs in the Philippines are drastically higher than its neighbors in Southeast Asia, including Indonesia, Vietnam, Thailand and Malaysia.

According to Salceda, the Department of Trade and Industry needs to develop a comprehensive strategy to deal with potential disruptions in the Philippine economy, mainly in the labor-intensive textile and footwear sector.

The region’s largest economies, such as India, Japan and South Korea, are relatively better off with tariffs in the 24 percent to 26 percent range.

Additionally, their key manufacturing sectors with substantial exports to the US, like pharmaceuticals and semiconductors, benefit from tariff exemptions.

Hefty tariffs, especially in Vietnam and Thailand, pose significant growth challenges.

That’s not just because of direct exposure to US imports but also indirect hits via exports to the US through other countries.

Vietnam and Taiwan stand out with the highest total exposure to US imports and considerable direct exposure.

Semiconductors are exempted from tariffs, which should reduce the blow on Taiwan. Chips aside, Taiwan’s export growth has been heavily concentrated in the US.

For Vietnam, with total exposure to US imports of 12 percent of GDP, a 46 percent tariff, ceteris paribus and assuming demand elasticity of 1, would put 5.5 percent of Vietnam’s GDP at risk.

Similarly, Thailand’s exposure of nine percent of GDP, with a tariff rate of 36 percent, risks 3 percent of GDP being impacted in the medium term.

Growth concerns deepen

Downside risks to growth, low inflation, and pressures from China’s manufacturing overcapacity risk displacing ASEAN exports. All this suggests further monetary policy easing in Asia is coming. We already have additional rate cuts in our 2025 forecast profile for Korea, 75 basis points (bps); Indonesia, 50bps; Philippines, 75bps; India, 75bps; Singapore, slope reduction and Australia, 75bps.

However, tariff war escalation could mean that the rate cuts come in faster than our expectations. The aim would be to ward off downward growth pressures proactively.

One country where the scope for rate cuts might increase is Thailand, where headline CPI is likely to slip into negative territory in the second quarter.

Tariffs’ relatively significant impact on growth could further shift the central bank’s stance in favor of rate cuts.