U.S. Reciprocal Tariffs Saga, not too bad for us

The trade turmoil that was triggered last April by Trump’s Liberation Day announcement is now heading into its 90th day “reprieve” for countries to reach an agreement with the US before the sweeping, across-the-board reciprocal tariffs would kick in. The markets have been gyrating like a roller coaster with the off and on supposed deals agreed to by several beleaguered countries.

The Philippines is no exception. Trump’s initial pronouncement of a 17-percent tariff, albeit relatively lower compared to other countries like Vietnam and Cambodia that were initially hit with 49-percent and 46-percent tariffs, respectively, was nevertheless a shocker, particularly considering our close historical relationship and our government’s recent cozying up to the Americans in its geopolitical war of nerves with China.

There were expectations our negotiating trade panel would be able to bag a more favorable deal. But even before the economic lead, Secretary Frederick Go could set foot in Washington, Trump came up with an even bigger shocker, announcing an increase of our tariff to 20 percent effective 1 August.

The big question now is what will happen on 1 August. Will we see another extension consistent with TACO (Trump Always Chickens Out), the moniker Wall Street traders gave Trump for his negotiating style of making a bold opening gambit only to back off when faced with a violent counter reaction, or will we see a universal gnashing of teeth as the different reciprocal tariffs go into effect?

Notwithstanding the TACO rep, to what extent have Trump’s threatened tariffs been effective?

Based on Fitch’s latest tariffs report, here’s a cursory look at the estimated reciprocal tariff rates on some countries effective 1 August: China, 41 percent; EU, 30 percent; Canada, 35 percent; Mexico, 30 percent; Brazil, 50 percent; Japan and South Korea, both at 25 percent; Laos and Myanmar, a whopping 40 percent (Note: Both countries are known to be used by China as re-exporters to the US); Cambodia and Thailand, both at 36 percent; Indonesia, 32 percent; Bangladesh, 35 percent; Sri Lanka, 30 percent; and Brunei, 25 percent.

Insofar as the Philippines is concerned, what conclusion can we draw from the above tariff estimates? Bottomline, even if the latest 20 percent higher tariff from the original 17 percent comes to fruition, regardless of the outcome of Secretary Go’s negotiations for a better deal, looking at this ongoing trade saga from the bright side, we are actually not in too bad a situation. Why?

Any of these countries with a rate over 20 percent could conceivably shift their manufacturing base, such as agri-business and electronics, to us.

Of course, this scenario assumes the differential in the economics are significant enough to overcome our perennial pitfalls, i.e., the uncertainty brought about by the never-ending self-inflicted political drama of our current and wannabe leaders; our higher power charges; our natural environmental hazards; and our being dangerously in close proximity to the US-China geopolitical tiff.

Let’s keep our fingers crossed that our ever cheerful optimism, growing domestic market base, and significant educated (so far still) manpower supply coupled with our wild card—I am referring of course to our ever friendly smiles and renowned hospitality—will trump (pun intended, folks) all other investor concerns and will boost employment and SME types of businesses and will bring in much needed tourism dollars.

All in all, I believe the ongoing tariff saga does give credence to the market and government estimates of a very benign inflation range of 2 percent to 3 percent and a regional leading growth rate of our GDP at about 5 percent to 6 percent.

Until next week… OBF!