WHEN PRESIDENT TRUMP announced his global reciprocal tariff rates to be effective April 10 except for China at 127 percent, the world reacted with a warning of a looming trade war that began manifesting itself in the stock market on the day the tariffs were announced.
But in the Philippines, which was slapped 17 percent, officials from both government and business sectors downplayed the impact of such tariffs saying that “ours is lower than that of our neighbors.”
The expressed optimism later turned into cautious statements with the largest and oldest business group, the Philippine Chamber of Commerce and Industry (PCCI), saying “retaliatory measures that other countries may take following Washington’s announcement of the reciprocal tariffs could badly hit Philippine small businesses, particularly those in agriculture and food processing.”
Even the Asian Development Bank revised its growth projection for the Philippines to 6 percent instead of 6.2 percent just last week saying despite the country’s strong macroeconomic fundamentals, heightened trade policy uncertainties and their spillover effects could dampen its growth.
If the impact of trade policy uncertainty on investments, financial markets, financial volatility and global risk aversion worsens, this could be a huge downside risk to the Philippines’s economic growth …’
RECIPROCAL TARIFF
The revulsion towards Trump’s tariffs caused him to flip flop (his usual strategy) on the rates saying he would now apply a uniform 10 percent for its allies but for China 125 percent. More as a reward tactic, he said the effectivity of the new rates for 90 days for countries that would not retaliate but would negotiate with the U.S.
Beijing, meantime, announced a reciprocal tariff of 84 percent on U.S. goods effective last April 10 and issued a new travel warnings for its citizens about visiting the U.S.
Trump, in his Truth Social post announcing the 90-day tariff pause, said that “more than 75 Countries” have called U.S. officials seeking to strike new trade deals.
The ADB said it revised downward its forecast to 6 percent (lower end of government’s target of 6 to 8 percent) because of the increased uncertainty due to shifts in trade and investment policies, increased protection that would “damage market sentiment and dent growth.”
DOWNSIDE RISK
If the impact of trade policy uncertainty on investments, financial markets, financial volatility and global risk aversion worsens, this could be a huge downside risk to the Philippines’s economic growth, and that of Asia and the world, according to Abdul Abiad, director of ADB’s Macroeconomic Research Division.
The PCCI in a statement Tuesday, said that while the US has yet to announce the exact coverage of goods that would be slapped with additional tariffs.
“We are wary at the potential impact of the actions other countries may take in response to the US’ reciprocal tariffs. Retaliatory measures can disrupt global supply chains, increase costs, and create uncertainty for businesses and consumers, bringing about a broad negative effect on economic growth.”
RIPPLE EFFECT
For a remittance- and consumer-driven economy like the Philippines’, the “ripple effect” of having to absorb extra costs will be hardest on small businesses, particularly those in agriculture and food processing, it noted.
Trade and Industry Secretary Cristina Roque said the economic team will discuss options, including concessions, as it prepares to negotiate with US officials over the 17 percent tariff on the country.
Based on the list of additional duties of Trump, the Philippines charges 34 percent tariffs on goods being sourced from the U.S. This rate takes into account “currency manipulation and trade barriers.”
PCCI chair George Barcelon said even though the Philippines would be slapped with one of the lower additional duties in ASEAN, “we have to do our homework and see what sectors can benefit from this.”
Meanwhile, the Bangko Sentral ng Pilipinas (BSP) is expected to continue its monetary policy easing at a “much more gradual pace” expecting the real interest rates to remain above neutral during 2025, just to help anchor inflation expectations and to manage the capital outflows.”
