Low-cost Asian manufacturers may benefit from Donald Trump's forthcoming return to White House, despite the likelihood of weaker Asian currencies, including the Philippine peso, according to the think tank Capital Economics.
“Asian currencies have depreciated against the US dollar since the election, and we believe they will weaken further in the coming months due to rising US Treasury yields and an increase in US tariffs,” said Gareth Leather, senior Asia economist at Capital Economics, in a report dated Nov. 8.
As of Nov. 9, the Philippine peso was trading at 58.46 against the US dollar.
Capital Economics also forecasts a continued weakening of most Asian currencies by three to five percent against the US dollar by 2025.
However, Jonas Goltermann, deputy chief markets specialist at Capital Economics, suggested that the dollar would not strengthen significantly due to Trump’s past behavior in office.
“Given that much of his rhetoric during his first term did not translate into immediate policy changes, or occurred more slowly than expected, this suggests that the dollar will likely see only limited gains in the next couple of months,” Goltermann remarked.
Leather noted that Indonesia's central bank is expected to refrain from cutting interest rates due to a weaker rupiah, while most of Asia will likely experience little impact on monetary policy from a Trump presidency in the near term.
“With inflation remaining very low and growth likely stagnant, we expect central banks to continue loosening monetary policy in the coming months,” Leather added.
The future of trade
While Trump’s proposed 10 percent universal tariff on all US imports could negatively impact the region, Southeast Asian countries, including the Philippines, may actually benefit from this situation by allowing their producers to capture more market share and attract additional investment.
These policies include Trump’s campaign promises of a 10 percent universal tariff and a 60 percent tariff on all imports from China.
The Philippines is not considered one of the countries most vulnerable to these tariffs; that distinction goes to Vietnam, Malaysia, and Thailand.
However, “Vietnam, with its low labor costs and strategic geographical position, has so far been the biggest beneficiary of the deteriorating US-China relations,” noted the think tank. “Other low-wage economies in the region could also benefit if they improve their business environments,” Leather remarked.
This opportunity also extends to the Philippines, which is positioning itself as an alternative to China, making ASEAN countries like the Philippines potential beneficiaries, according to Michael Ricafort, chief economist at Rizal Commercial Banking Corp. (RCBC).
He added that this shift presents an opportunity to diversify the global supply chains of multinational companies.
Ricafort also pointed out that the Philippines is establishing itself as a cost-effective hub for high-skill industries such as business process outsourcing (BPO) and heavy manufacturing, competing with developed countries like Singapore and Japan.
With a large, young population and strong economic fundamentals, the Philippines represents an attractive, fast-growing market within ASEAN and Asia, Ricafort concluded.