Despite hopes for a lower rate, the Philippines has been slapped with a 20-percent reciprocal tariff by the United States — higher than the initial 17 percent discussed in earlier negotiations.
Still, the Philippine government is putting on a brave face, insisting the trade levy remains the lowest in the region. Traders, however, warned the local economy will take a direct hit from the US measure.
US President Donald Trump sent letters Thursday to the leaders of the Philippines, Sri Lanka, Brunei, Algeria, Libya, Iraq and Moldova announcing duties ranging from 20 to 30 percent, set to take effect on 1 August.
In a letter dated 9 July and addressed to President Ferdinand Marcos Jr., Trump cited “many years of the Philippines’ Tariff and Non-Tariff Policies and Trade Barriers” that resulted in persistent US trade deficits.
He noted that the 20-percent tariff was “far less than what is needed to eliminate the trade deficit disparity” and warned that any retaliatory tariff hikes by the Philippines would be matched dollar for dollar.
Still, Trump left the door open to cooperation, stating that no tariffs would apply if Philippine companies built or manufactured goods in the United States.
“We will do everything possible to get approvals quickly, professionally, and routinely — in other words, in a matter of weeks,” Trump wrote. He added that the tariffs could be “modified, upward or downward,” depending on future trade relations.
While the level was not far from that threatened in April, some countries received notably lower rates this time.
In April, Trump imposed a 10-percent tariff on nearly all trading partners, but held back higher rates for dozens of economies. The original deadline for the steeper tariffs was 9 July but he extended it to 1 August.
Bourse absorbs impact
Investor sentiment took a hit on Thursday amid fears of renewed trade tensions. The Philippine Stock Exchange Index (PSEi) dropped 41.14 points, or 0.63 percent, closing at 6,463.20, with selling pressure intensifying toward the end of trading.
Philippine equities followed regional losses after confirmation that the US would impose a 20-percent tariff on Philippine exports starting 1 August.
Trading value reached P7.88 billion, excluding extraordinary block sales. Market breadth remained positive, with 107 gainers outnumbering 85 losers, while 55 issues were unchanged.
Despite the drop, oil prices helped support global markets. Brent crude was steady at $70.19 per barrel, up 0.06 percent, amid strong US gasoline demand and ongoing shipping disruptions in the Red Sea.
The Philippine Exporters Confederation Inc. (PhilExport), the country’s largest trade group, said the government must focus on removing impediments to export growth.
The Department of Trade and Industry (DTI) expressed concern: “Notwithstanding their efforts and constant engagements, the US still decided to impose a 20-percent tariff on Philippine exports.”
Trade and Industry Secretary Cristina Roque noted that the 20-percent rate was still the second lowest among reciprocal tariffs the US has imposed on countries in the region.
Among Asian and ASEAN countries, the US imposed tariffs of 25 percent on Japan, South Korea, and Malaysia; 30 percent on China; 32 percent on Indonesia; 35 percent on Bangladesh; 36 percent on Thailand and Cambodia; 40 percent on Laos and Myanmar; and only 10 percent on Singapore.
“The problem is we have the same tariff now as Vietnam, our tough competitor, from the previous 46 percent. They have so much to leverage, unlike us, we have already given the US our all,” said PhilExport president Sergio Ortiz-Luis Jr. in a phone interview.
He said the Philippines lacks meaningful leverage compared to other ASEAN members.
“The only thing the Philippines can offer the US will affect our agricultural sector, which we cannot afford anymore, as we have already hit the limit, and the agricultural sector remains problematic,” he added.
Ortiz-Luis noted that Trump may still change course, depending on his mood. He urged the Marcos administration to improve the country’s competitive edge.
“I think now the government has to take seriously the export sector, which so far has been the subject of lip service, as in terms of product development, joining international trade and marketing. No funding, which matters, is coming from the government for the industry,” he said.
He pointed out that, in terms of funding, the Philippines lags behind its ASEAN neighbors, whose export sectors receive significant government support.
Hopes pinned on renegotiation
Roque said the economic team will meet to decide the next steps before flying to the US, likely next week, to renegotiate the 20-percent tariff with US Trade Representative Jamieson Greer.
The Philippine delegation will include Roque, Special Assistant to the President for Investments and Economic Affairs Frederick Go, and Trade Undersecretaries Allan Gepty and Ceferino Rodolfo.
In a Malacañang briefing, Go said that while the trip had been scheduled before the tariff announcement, the issue will now be a priority in discussions.
The Palace economic team will lead the second stage of high-level negotiations in Washington, D.C.
Go assured that top Philippine exports — semiconductors and electronics — remain exempt from the new tariff scheme. US officials are currently reviewing whether to maintain these exemptions.
Phl exports total $12-B
According to the Philippine Statistics Authority, total exports to the US in 2024 reached $12.14 billion, accounting for 16.6 percent of the country’s total exports.
Electronics and semiconductors led the way at $6.4 billion, followed by machinery, nuclear reactors, boilers, and animal/vegetable fats and oils.
Despite the setback, Go said the Philippines is in a “relatively favorable” position and is using the situation to push for long-term trade reforms.