Philippines poised to be global value chain hub despite trade war risks—Recto

Despite the potential impact of a global recession feared from escalating trade wars, President Marcos’ chief economic manager stated that the Philippines has the potential to become a major hub in the global value chain.

“As with all countries, we are not spared from the impact of the expected decline in international trade and possible slowdown of global growth due to supply chain disruptions, higher interest rates, and higher inflation,” Department of Finance (DOF) Secretary Ralph G. Recto said in an April 3 statement.

This followed the latest development in international trade, particularly between the United States (US) and its trading partners.

On April 2 (US time), US President Donald Trump slapped reciprocal tariffs on countries exporting goods to the US, including the Philippines, at 17 percent.

According to Trump’s so-called “Liberation Day” announcement, the Philippines charges an average of 34-percent tariffs on American exports, hence the reciprocal tariffs equivalent to their half.

Despite the possibility of trade wars hurting the local economy, the DOF said the Philippines could still be “a hub for global value chains, particularly in industries like electronics, textiles, food, and automobiles.”

Given the country’s strong position in coconut production, it is also poised to grow its market share in the US for coconut products like coconut oil, desiccated coconut and copra meal or cake.

This optimism stemmed from the relatively lower US tariffs levied on Philippine imports. The DOF noted that compared to its Association of Southeast Asian Nations (ASEAN) neighbors, Philippine exports to the US will be subjected to a lower rate. This comes along with the trade giant’s slapping of higher tariffs on Vietnam (46 percent), Thailand (36 percent), Indonesia (32 percent), Malaysia (24 percent), and Cambodia (49 percent).

“As major competitors like China, Bangladesh, Vietnam, Mexico, and India face higher tariffs, Philippine garment exports are also at an advantage of expanding its US market share,” the DOF said.

Another factor that could help the Philippines minimize the impact of trade wars is its domestically driven economy.

“The Philippine economy is primarily driven by domestic demand rather than exports. This makes us relatively resilient against trade wars,” Recto noted.

Amid intensifying trade tensions, Recto pointed to the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy (CREATE MORE) Act as a way to strengthen the country’s ability “to attract investors looking to expand or relocate to the Philippines, given the relatively lower tariffs imposed on our exports to the US.”

“We are also actively pursuing more free-trade agreements (FTAs) with our global partners,” he further said.

To diversify export markets, the DOF said the government is actively seeking new and expanded FTAs with countries such as the United Arab Emirates (UAE), the European Union (EU), Chile, and Canada.

In an April 3 report, the think tank Capital Economics said high tariffs slapped on many Asian countries may foster “friendshoring.”

The Switzerland-based World Economic Forum (WEF) defines friendshoring as “rerouting of supply chains to countries perceived as politically and economically safe or low-risk, to avoid disruption to the flow of business.”

In 2023, WEF noted that friendshoring has been “a growing trade practice where supply chain networks are focused on countries regarded as political and economic allies.”

“US tariffs on goods from China are still much higher than those elsewhere in Asia, so some economies could still benefit from friendshoring. But uncertainty over future tariffs will mean that domestic markets matter more than they used to when firms decide where to invest,” Capital Economics said.

“India, Indonesia and the Philippines look better in a relative sense: lower tariffs than others and, with India in particular, a sizable domestic market,” the think tank added.

(with a report from Ben Arnold de Vera)