With Philippine exports to the US slapped with a 20-percent tariff — up from the original 17 percent — by President Donald Trump, the country’s economic managers should now be pondering strategies, especially if the team led by Special Assistant to the President for Investments and Economic Affairs Frederick Go and Trade and Industry Secretary Cristina Roque fails to negotiate better terms with Washington.

Theirs is a consequential mission, with far-reaching implications for local exporters, policymakers, and foreign investors evaluating the Philippine economy’s long-term potential.

Go’s and Roque’s team should consider an analysis by British research firm BMI, a Fitch Solutions subsidiary, which sees a chance to negotiate the tariff down to 10 percent — if Manila offers defense concessions as a bargaining chip.

BMI’s Asia country risk head Darren Tay said, “We believe defense spending will emerge as a point of contention” in the talks. “Making concessions on defense is a good way of securing a trade deal, given that pushing allies to do more is a Trump priority.”

But even if the team gets Washington to lower tariffs through defense concessions, at what cost? Following NATO’s agreement to raise defense spending to five percent of GDP, Trump has asked Asian allies to follow suit. Can the Philippines afford this?

At present, the country spends $5.77 billion, or 1.25 percent of GDP, on defense. Raising this to five percent would mean a staggering $23.08 billion — more than the country’s health ($625 million) and education ($18.63 billion) budgets combined.

Diverting funds to meet that demand would strain the budget, particularly with 16 percent of Filipinos still living in poverty. The social cost — and the political fallout — could be severe.

Moody’s Analytics Senior Director Choon Hong Chua said the 20-percent tariff would add “complexity to global supply chains,” fueling uncertainty for Philippine exporters entering the US market.

Increased costs and volatility could mean lower demand and tougher competition, especially if higher prices are passed on to US consumers.

This is no small matter. The US remains one of the Philippines’ top trading partners. Last year, total bilateral trade hit $23.5 billion — $14.2 billion in Philippine exports to the US, and $9.3 billion in US exports to the Philippines.

Any disruption in that commercial relationship could reduce foreign exchange revenues and impact supply chain continuity for US firms sourcing from the Philippines.

The tariffs also arrive amid economic headwinds. In March 2025, the country posted a $2-billion BoP deficit, reversing a prior surplus. While not directly linked to the tariff hike, continued export declines could weaken the peso and drive up inflation.

Still, institutions like the Asian Development Bank maintain a positive outlook for the Philippines, citing strong domestic demand, infrastructure investments, and relatively stable inflation.

Foreign investors, too, may remain confident, seeing beyond the tariffs to an economy bolstered by consumption and public spending.

But while Go and Roque work on reversing the tariffs, the Philippines must also pursue trade diversification, increasing exports to the Middle East and non-traditional RCEP partners.

It must also reinforce incentives under the CREATE MORE Act to cushion the blow of global tariff risks and attract long-term capital.

Trump’s tariff adds complexity. But the Philippines, with sound fundamentals and expanding global trade linkages, may yet prove it can weather even this storm.