U.S. TAX binge heightens rivalry

U.S. TAX binge heightens rivalry | Daily Tribune

The United States’ new trade regime has forced trading partners to view each other as competitors.

Thus, Filipinos need to wake up to the emerging reality of the need to compete, Jomar Lacson, head of macroeconomics and sustainability research at ATR Asset Management, said of the “asymmetric” reciprocal tariff deal between the United States and the Philippines.

Under the deal struck between Presidents Donald Trump and Ferdinand Marcos Jr., Philippine exports are slapped with a 19 percent tariff while US goods will be allowed to enter the country tax-free.

Lacson, who writes a weekly column for Daily Tribune, said despite all the integration and smoking the peace pipe with neighbors, the short-term impact is a potential reduction in some of our exports given the tariffs will make it more expensive for the US consumer to purchase.

Economists have said that American buyers of Philippine goods will pay for the higher tariffs which means a possible reduction in demand or orders.

“We still do not know the full details of the agreement, but if the US keeps semiconductors exempt, then the impact may be less, given the bulk of our exports are in these segments,” Lacson indicated.

Moreover, the long-term impact may be more “in the sense that since our ASEAN (Association of Southeast Asian Nation) peers are also facing similar tariffs, the relative price competitiveness of Philippine exports did not change much.

“The bigger question to ask when 1 August comes around is whether our other competitors for other products will be facing lower or higher tariff rates than ours,” he said.

Depending on the final numbers, the price competitiveness of some of the country’s exports, which compete with the likes of South America for fruits and sugar, may be enhanced or weakened.

Non-tariff related factors that have long-term implications, such as regional security should also be part of the discussions.

Yet, there will be immediate benefits for consumers and the inflation prospects.

For instance, Lacson held that “tariffs on US motor vehicles are around 40 percent that may increase the availability of parts and vehicles of US brands still manufactured in the US to the Philippines.”

It remains to be seen if the removal of the tariff will make them affordable to the local consumer market.

Car brands Ford and Tesla are already in the market. “So competition may heat up if pricing improves. Perhaps a key beneficiary is US motorcycle brands that are still made in the US, like Harley Davidson, Indian, or even Keannu Reeves’ ARCH Motors.”

Agriculture and food are not much to be apprehensive about since they are protected sectors of the economy.

“We don’t produce soy and wheat so there should be no displacement there but the US also produces rice and our food manufacturers may be acquiring wheat from other countries such as Ukraine or India,” he explained.

Depending on the relative prices of these goods across the globe, we may see some displacement in the supply chains.

Tariffs are a form of protection for industries. The loss of this protection will either spur investments to make our industries more competitive, or it will trigger a capitulation if affected industries do not enhance their competitiveness.

The Trump tariff offensive occurred during a period when the World Trade Organization (WTO) allowed some protection to give countries time to invest in building their so-called economic moats.

Lacson foresees the global trade environment to eventually change given the revamp in the tariff schedules.

“It is the relative prices post the final tariff rates are applied that matters at this stage. It is possible that with our deal, other countries will try to secure better deals. It is still an evolving issue,” Lacson concluded.