While no economy in the Asia-Pacific (APAC) region will be resistant against the impact of an even more complicated global trade, the Philippines and other domestically driven economies could easily adapt.
“Intensification of geopolitical pressures could further harm the APAC region,” credit-rater Moody’s Ratings said in its report titled “Diversification from China continues; mixed impact for ASEAN and India,” published on Thursday, March 20. ASEAN stands for the Association of Southeast Asian Nations, which groups the Philippines and nine of its regional neighbors.
Moody’s was referring to fragmentation policies, or trade blocs’ actions disrupting the interconnectedness of the global trading system, “likely” reducing business in the region—“thus lower demand for exports.”
The credit rating agency noted that its expectations still stand, that “no economy in APAC will be immune” to the looming trade struggle.
“But those that are primarily domestically driven such as India, Indonesia and the Philippines,” which it rated Baa2 stable, “will cope better,” it said.
Domestic-driven economies depend mainly on local consumer spending and investment, making them less vulnerable to external shocks affecting international trade.
The impact that the Philippines and its regional peers would experience depends on the type, range, and possible retaliation of the tariffs and exemptions.
Meanwhile, “United States (US) trade policies pose downside risks for export-oriented economies,” according to Moody’s.
It has been a general expectation that US President Donald Trump’s presidential comeback could prompt a risk of escalating trade tension, especially with its giant strategic rival—China.
Moody’s said that the US is expanding its criteria for assessing bilateral trade ties under the “Reciprocal Trade and Tariffs” policy, which it expects to take effect by April 1.
“This broadening increases complexity, reduces transparency, and raises the likelihood of imposing tariffs on more economies,” the credit rating agency noted.
Based on the most recent developments, “US imports of tech and electronics products have diverted away from China into ASEAN and India.”
But Moody’s noted that “efforts to diversify imports away from China do not necessarily reduce dependence on Chinese industries.”
“China has gained market share of ASEAN’s imports of electronics, chemicals, machinery, textiles and apparel,” it said. At the same time, ASEAN’s exports of these products to the US have grown significantly.
“This points to a trend of ASEAN increasingly sourcing inputs from China to feed into its manufacturing sector and serve the US market.”
Specifically, China’s added value in products sent to ASEAN is later included in goods that the region exports to the US.
Thus, efforts to diversify from China will, ironically, likely lead to stronger relationships with China. But this could only be a fleeting scene, said Moody’s, as Trump has ordered crackdowns on indirect trade with China by imposing preliminary duties on solar cells from Southeast Asia.
To enhance its footing in global trade, Moody’s suggested that the Philippines and ASEAN in general develop their own value-added production.
It argued that weak domestic supply chains and trade policy gaps remain the main challenges “hindering faster development of new manufacturing hubs.”