Japanese financial giant MUFG Bank Ltd. sees a mild impact arising from the potentially higher United States (US) tariff set to be imposed on Philippine goods imported into America.

“This announcement is to some extent a downside surprise for our FX [foreign exchange] and macro forecasts, given that we were implicitly expecting a trade deal between the US and the Philippines with a small bilateral trade deficit between the two countries,” MUFG Global Markets Research senior currency analyst Michael Wan said in a July 10 report.

Wan was referring to US President Donald Trump’s July 9 letter to President Ferdinand Marcos Jr., announcing a 20-percent tariff on Philippine exports to America effective Aug. 1, which is higher than the 17-percent reciprocal tariff announced in April.

Despite this, Wan said MUFG still expects the peso to strengthen to the ₱55 level against the US dollar early next year, while the Bangko Sentral ng Pilipinas (BSP) is seen to be on track to cut key interest rates by 50 basis points (bps) more before year-end, even as “the risks tilted slightly to more cuts with this tariff announcement.”

“The 20-percent headline tariff rate for the Philippines is still lower relative to the rate announced for other countries including Thailand, Indonesia, and Malaysia, although now at the same rate as Vietnam. Depending on the final tariff rates across countries, this could of course weigh more heavily on US demand and hence growth and the current account,” Wan said.

“Nonetheless on a relative perspective the incentive to substitute away from the Philippines’ exports towards its competitors is not that high,” he added.

Wan also noted that the Philippines’ value-added exports to the US are relatively small—only 1.3 percent of gross domestic product (GDP) for goods and four percent including services, with much of the latter coming from sectors like business process outsourcing (BPO) that are minimally affected by US goods tariffs, resulting in limited overall sensitivity to an American import slowdown.

Also, Wan cited that since the Philippines’ exports to the US are heavily concentrated in electronics—a sector where about 30 percent of exports will remain exempt even after reciprocal tariffs—and any sectoral tariffs will apply globally rather than specifically to the Philippines, the overall impact depends on the specific details but will still raise the effective tariff rate.

Moreover, Wan said that even if the Philippines offers meaningful tariff cuts to the US in upcoming negotiations, the competitive impact on domestic industry may be limited, as many current American imports—such as electronics and vegetable products—already face low tariffs, and the Philippines has relatively low dependence on the US for raw materials.

“These assumptions on the tariff impact for the Philippines are nonetheless sensitive to many factors, including the final tariff rates that the Philippines receives relative to other countries, and also the absolute level of sectoral tariffs on electronics exports,” he said.

Wan likewise noted that while the US is an important export market in sectors like leather, furniture, toys, sports equipment, and textiles, since the Philippines is not a dominant supplier to America across these categories, a meaningful rise in tariff rates relative to other countries could lead American importers to shift sourcing away from the Philippines, potentially impacting its exports.

“Over the medium term, with tariff rates closer to 20 percent, the marginal incentive to shift some manufacturing to the Philippines also becomes less compelling, even as we highlight that we were not assuming a substantial manufacturing shift for the Philippines as our base case to begin with. In other words, relatives matter, but so do the opportunity costs for the Philippines,” according to Wan.