The Philippines emerged with one of the most favorable tariff rates in the region following a recalibration of US trade duties under President Donald Trump’s administration. 

On 22 July (US time), the US announced it would lower tariffs on Philippine goods to 19 percent – slightly reduced from the earlier 20 percent levied starting 9 July – in exchange for Manila’s commitment to open its market to US automobile imports with zero duties.

While the US side trumpeted the deal as a bilateral opening, President Ferdinand Marcos Jr. clarified that the Philippines has not agreed to a broad zero-tariff policy, only specifically for imported American vehicles. Full details of the agreement are still being ironed out, with the US-Philippine trade talks expected to continue until the 1 August deadline.

Despite the cut, Philippine exporters may still feel the pinch.

“The biggest hit would still be on Philippine exporters with the 19 percent tariffs – except for electronics, according to the leading Philippine negotiators,” said Michael Ricafort, Chief Economist of Rizal Commercial Banking Corporation. 

“The US is the Philippines’ biggest export market, accounting for 17 percent of total shipments. Slower demand could indirectly affect the broader economy.”

However, Ricafort also noted that the overall drag on Philippine GDP is likely to be limited, considering the country’s relatively low export-to-GDP ratio compared to other ASEAN neighbors.

Regional comparison

The Philippines now joins Indonesia with a 19 percent tariff rate, just behind Japan’s 15 percent – currently the lowest in Asia under Trump’s latest trade recalibration.

Other ASEAN countries were slapped with significantly higher tariffs: Vietnam at 20 percent, South Korea and Malaysia at 25 percent, Thailand and Cambodia at 36 percent, and Laos and Myanmar at 40 percent. China remains the hardest hit, with a 30 percent tariff rate.

Tariff trends and economic strategy

The tariff adjustments follow Trump’s pattern of front-loading high tariffs as a negotiation tactic – a strategy economists have dubbed the “TACO” approach (“Trump Always Chickens Out”), where the US leader often scales back his initial threats to avoid domestic inflationary pressures or global backlash

“Markets are still on a wait-and-see mode if Trump would compromise further before the August 1 deadline,” Ricafort said. 

“The risks of global stagflation and investment slowdown remain real, but also partly priced in.”

Philippine exporters likely frontloaded shipments to the US ahead of the 9 July hike, which may cushion the immediate impact. Electronics, the country’s top export, are reportedly exempted under the current deal – though this still awaits final confirmation.

Market reaction and outlook

Despite ongoing trade uncertainties, the US stock market remains buoyant, with the S&P 500 hitting record highs. Crude oil prices and US Treasury yields have moderated, while the US dollar remains weak against a basket of global currencies – signs that investors are expecting some degree of policy moderation.

The peso remains steady at 56.92 to the dollar, near one-week lows, though still hovering at 3-month highs.

Ricafort added that any cooling in the Philippine economy due to lower export demand could support further policy rate cuts, particularly if inflation remains benign and the US Federal Reserve continues its easing cycle.

While the 19 percent US tariff on Philippine goods is not ideal, it remains one of the lowest in Asia, potentially preserving the country’s competitiveness in the US market – especially if trade talks with other countries break down.