With President Ferdinand Marcos Jr. only managing to secure a one-percentage-point (ppt) reduction in tariffs on Philippine exports to the United States (US), the country is seen to lose its “minimal” competitive edge over its regional peers—an advantage it enjoyed due to a strong peso and higher inflation.

“A reciprocal tariff rate of 19 percent would erase this advantage and risks putting Philippine exports at a disadvantage in the US market,” HSBC Association of Southeast Asian Nations (ASEAN) economist Aris Dacanay in a July 23 commentary.

Dacanay expects the Philippine economy to be challenged “without the relative advantage of a lower tariff rate.” As such, he sees Philippine gross domestic product (GDP) growth to fall short of the downscaled growth target of 5.5 to 6.5 percent.

“We maintain our growth forecasts of 5.4 percent and 5.8 percent for 2025 and 2026, respectively, while flagging the increasing downside risk of a deeper easing cycle by the Philippine central bank,” Dacanay said.

Dacanay sees the Bangko Sentral ng Pilipinas (BSP) delivering one more quarter-point rate cut to five percent by year-end from the current 5.25-percent policy rate, “ending” the monetary easing cycle that the central bank kickstarted in August last year.

To date, the BSP has slashed a total of 1.25 ppts from the 6.5-percent rate prior to the ongoing policy loosening.

Aside from slower growth, Dacanay also said that it will be more difficult to attract foreign direct investments (FDIs) to the Philippines.

To recall, net inflows of brick-and-mortar FDI into the Philippines increased to $610 million in April, the highest in three months, driven by larger investments in the manufacturing sector from Japan. It climbed by 7.1 percent from $570 million in April last year, according to the BSP.

On July 23, Marcos concluded tariff negotiations with US President Donald Trump. While Philippine exports will be slapped with a 19-percent tariff, both countries agreed that certain American goods imported into the country will enjoy zero tariffs.

Japanese financial giant MUFG Bank Ltd. noted that “US trade agreements with major partners have also similarly established tariff rates within the 10- to 20-percent range.”

Indonesia managed to lower the tariff rate on its exports to 19 percent, similar to the Philippines, but it significantly declined from the 32 percent imposed by Trump in April. Vietnam’s exports will be slapped with a 20-percent tariff, down from 46 percent previously.

MUFG Global Markets Research senior currency analyst Lloyd Chan said the lowered tariff rates reflect “a shift in US trade policy toward a relatively more moderate form of protectionism compared to those reciprocal tariff rates announced on US Liberation Day in April.”

Chan also said the latest developments suggest that a 10- to 20-percent tariff band is “emerging as the new norm for countries that successfully negotiate trade deals with the US.”

“Based on the trade deals Vietnam and Indonesia have had with Washington, finding ways to open domestic markets to the US seems to be a useful bargaining chip,” Dacanay noted.

Marcos earlier said that Trump requested to scrap the tariffs on American automobiles entering the Philippine market, along with increased imports of soy products, wheat, and pharmaceuticals.

With no relative advantage from lower tariffs, Dacanay said the country is expected to fall back on its usual “but effective” strategy of emphasizing strong economic reforms to draw in foreign investments and technology.

He added that to improve the country’s competitiveness, regardless of tariff-related uncertainties, the government should continue its ambitious infrastructure program and open up more sectors, such as renewable energy (RE), to investors.