The ongoing trade dispute between the United States (US) and China could benefit manufacturing hotspots in Southeast Asia, such as the Philippines, provided the government implements sweeping reforms to align trade and investment policies with industrial strategies.

In a virtual forum hosted by the Philippine Manufacturing Team, former Department of Trade and Industry (DTI) Undersecretary Rafaelita Aldaba said she is expecting manufacturing firms in China to redirect their exports toward alternative markets.

This is a direct consequence of the 145-percent tariffs US President Donald Trump slapped on Chinese goods last month as part of both countries’ trade war.

Aldaba, now an emeritus researcher at the Philippine Institute for Development Studies (PIDS), said Southeast Asia will primarily benefit from the export shift due to its proximity to China.

While she noted that this can benefit manufacturers and consumers through cheaper inputs and products, it raises concerns of market saturation that could potentially damage local industries.

However, as Chinese firms are looking to find a new venue for their exports, the massive tariffs imposed by the US would create a strong incentive to relocate their manufacturing facilities to lower-risk countries.

Aldaba said the Philippines would be a good candidate for these expansion prospects since it has one of the lowest reciprocal tariffs from the US, at 17 percent.

Under her PIDS study titled, “Navigating a New Era of Reciprocal Tariffs: Strategic Implications for the Philippines and selected ASEAN Economies,” Aldaba said the “relatively modest” tariffs of the country compared to its regional peers place the country under “moderate exposure”.

Through the study’s tariff exposure composite index, which measures the implications of the US tariffs, it noted that the relatively high exemption coverage of 33 percent in Philippine goods strongly cushions the country from broader tariff disruptions.

The coverage primarily accounted for the tariff exemptions on electronics, including semiconductors, which cover more than half of the country’s total exports.

The country still faces some exposure through its non-exempted exports, such as oil, insulated wires, and containers, that are more vulnerable to cost hikes and increased competition.

“Despite this, the Philippines is strategically positioned to benefit. Its unique combination of low tariff rate, strong exemption for high-value exports, and moderate strategic exposure creates an advantageous platform for trade redirection, particularly for thin-margin, cost-sensitive goods,” the study read.

Turning the tide

To harness the rare opportunity, Aldaba said the country must make crucial reforms to strengthen its industrial base, boost logistics and customs efficiency, and actively promote itself as a stable and efficient export hub amid shifting global supply chains.

With the Philippines’ present strength in electronics and semiconductors, she cited the need to expand production into final assembly and testing, converter production, and peripheral manufacturing to attract foreign investments.

She said this would move the country up the value chain, making it a top choice for companies eyeing further growth.

Strong industry growth is seen as guaranteed, assuming that the infrastructure is ready, limited industrial depth is addressed, the strict US rules of origin are complied with, and the labor force is already trained.

Strong industry growth is seen as likely—assuming that infrastructure is in place, limited industrial depth is addressed, rules of origin compliance are met, and the labor force is adequately trained.

However, given that global trade policies are almost always changing, a more feasible option for the Marcos administration is to streamline government measures, which would help provide a framework for short- and long-term growth.

Aldaba said the government must implement an industrial upgrading and resilience-building program that would help transition local industries from assembly-centric to upstream.

This program, she said, would focus on prioritizing investments in critical sectors, aligning technical, vocational, and higher education programs with 21st-century industrial needs, and upgrading logistics and customs operations, among others.

She also vouched for more stringent trade defense and monitoring mechanisms that are consistent with the safeguards, anti-dumping, and countervailing duties of the World Trade Organization (WTO).

The former DTI official said the government could also consider establishing a trade-industrial transformation council to oversee the country’s integrated trade defense, industrial upgrading, and investment promotion.

“If we’re able to quickly implement strategic reforms, we can strengthen our industries which can lead to higher investments, more quality jobs for Filipinos,” she added.