Local traders will suffer from the influx of cheap imports from the United States, which can be mitigated by promoting a free market, a policy that US President Donald Trump has avoided.

Economists and business groups, weighing the impact of the reciprocal trade deal that resulted in a 19-percent tariff imposed on Philippine goods entering the US while removing the levy on US imports, are divided on its immediate impact.

Yet, the unanimous view was that the need to diversify through free trade deals was essential.

The deal sealed at the White House on Tuesday, however, drew sharp criticism from former US Ambassador to the Philippines Harry Thomas Jr.

“The 19-percent tariff is a slight relief from the 20 percent originally floated by the Trump administration. However, it still places Philippine exporters in a difficult position, especially compared to developing countries with free trade agreements like Mexico and Vietnam,” according to the US diplomat.

Foreign trade associations said the lopsided deal struck during the visit of President Ferdinand “Bongbong” Marcos Jr. to the United States to meet with President Donald Trump came as a surprise, but most expressed high hopes for the state of the country’s trade.

“I was surprised at the only one percentage point reduction, but I do know trade talks are continuing. Hopefully, it will lead to free trade agreement (FTA) negotiations in the future,” American Chamber of Commerce of the Philippines executive director Ebb Hinchliffe said in a Viber interview.

European Chamber of Commerce of the Philippines (ECCP) Executive Director Florian Gottein said the imposition of the 19-percent tariff sends a strong signal to the government to consider other markets, especially the European Union (EU).

“Yes, indeed. It is an opportune time for the Philippine government to strengthen its trade ties with other countries further. The EU remains a strategic and high-potential destination for Philippine goods, especially with the EU GSP+ in place and ongoing negotiations on the EU-Philippines Free Trade Agreement,” Gottein said.

“We believe this is a timely opportunity to strengthen trade ties with the EU and for Philippine exporters to explore the benefits of tapping into the vast European market,” according to the ECCP official.

On 16 June, the Philippines and the EU began the third round of FTA negotiations in Brussels, Belgium, aiming to give a significant boost to the already vibrant bilateral trade and investment relations between the two parties.

The EU is the Philippines’ fourth-largest trading partner and a significant source of foreign direct investments.

The largest traders’ organization, the Philippine Exporters Confederation (Philexport), was conciliatory in its statement, saying that it appreciated the effort of President Marcos to take on the responsibility and accountability of serving as the chief negotiator in the meeting with President Trump.

But it stated that “the results may not be as much as we want in terms of tariff reduction.”

Philexport, however, indicated that the sectors opened to the US are unlikely to harm local industries “because we are not producers of such products.”

“This is even a good move for consumers and businesses importing US technology and other inputs,” the group added.

The P3-billion US aid for energy, maritime, and economic growth, the first American assistance to any country in this term, also came as a critical intervention that can be used to help lessen the possible negative impacts of the 19-percent tariff.

It also opened the door to continued discussions, negotiations, and engagement with our US counterparts, particularly for an FTA with the US and other future concessions for the industry and agricultural sectors, Philexport said.

No direct hit

What is emerging as a consensus among the experts is that the domestic economy will indirectly feel the impact of inflation as it affects the US economy.

According to University of the Philippines School of Economics assistant professor JC Punongbayan, Trump has failed to realize that tariffs are paid not by other countries but by American consumers.

“Consequently, Americans should brace for higher inflation. While April and May inflation remained muted, economists warn that inflation will skyrocket once Trump’s tariffs push through,” he explained.

US inflation spikes, similar to what happened in 2022, will be detrimental to the local economy and the rest of the Association of Southeast Asian Nations (ASEAN).

“This will likely increase interest rates. This is exactly what ASEAN central banks did between 2022 and 2023. More worryingly, another round of interest rate hikes, sooner or later, will dampen already weak regional economic growth,” Punongbayan said.

“Under Trump 2.0, it might be wise for the Philippines not to put all its economic eggs in the US basket,” he added.

Backlash on American buyers

Filipinos will not bear the impact of the tariff offensive. American importers and buyers of the affected products will, Special Assistant to the President for Investment and Economic Affairs Secretary Frederick Go said.

SM Investments Corp. economist Robert Dan J. Roces said the Trump trade blitz may dampen short-term demand for key goods, such as electronics, apparel, and processed foods. Still, it would create an opportunity to diversify markets and sharpen competitiveness.

“Meanwhile, zero tariffs on select US imports — mainly autos, soy, and pharmaceuticals — pose a limited risk to local agriculture, which remains protected,” he maintained.

The expert suggested that the economy should be positioned to adapt, with opportunities to strengthen regional ties and modernize key industries.

Former Socioeconomic Planning Secretary Cielito Habito said that for many, the new tariff rate would be a disappointment because it’s still higher than the original announcement of a 17-percent tariff.

So that sort of diminishes the kind of advantage we were hoping to have over some of our competitors, he said.

But then again, as President Marcos said, in absolute dollar or peso terms, it still counts for a lot. So, we have to make the most of it. But really, what we have to do is shape up so that we can be cost-competitive enough to be able to absorb that kind of tariff in our biggest foreign market, which is the United States, he added.

“The ones who will pay these tariffs are the Americans, the importers, the buyers of products from all over the world. Ultimately, the American consumers will bear the burden of these tariffs. The American citizens who buy the products that they import are the ones who will pay these tariffs,” Habito said.