How the Philippines can navigate global trade wars
By: Atty. Mark Anthony P. Tamayo on April 17,2025.
TARIFF, in general, is a government-imposed tax on imported goods and, in some cases, on services. Its primary function is to hollowly increase the price of foreign products, subtly influencing consumer preferences toward domestic substitutes. This mechanism not only protects domestic industries but also generates revenue and influences trade negotiations by making domestic products competitive.
The recent resurgence of protectionist policies, particularly the United States’ imposition of substantial tariffs, has generated deep concern within the global economic community. These actions, recalling the detrimental effects of the 1930 Smoot-Hawley Tariff Act, raise fears of a trade war and economic isolation.
The US’ “reciprocal tariff” methodology, which links tariff levels to a particular country’s trade surplus with the US relative to its overall exports, further intensifies this controversy. This “true-up” or “catch-up” system appears incompatible with the World Trade Organization’s Most-Favored-Nation principle, which mandates free competition and nondiscriminatory trade treatment.
The discriminatory nature of reciprocal tariffs undermines this core principle by creating unequal treatment among trading partners. While the economic soundness and political motivations behind these tariffs remain contentious, their potential implications for Asian economies, particularly the Philippines, require meticulous scrutiny and strategic planning.
Analyzing US-Philippines trade requires careful consideration of multiple factors, moving beyond simple deficit/surplus figures. The Philippines’ substantial imports of US capital goods, including machinery, pharmaceutical products, and essential inputs for semiconductors and electronics manufacturing, directly fuel its industrial development.
These imports contrast with its export portfolio, which is largely composed of finished and agricultural products. While Philippine trade surpluses can generate foreign exchange and support domestic industries, they risk US protectionist responses, as seen with reciprocal tariffs.
Conversely, deficits may signify reliance on US imports, potentially impeding local industry development.
A balanced Philippine trade strategy requires fostering mutually beneficial partnerships, reducing trade barriers and promoting sustainable economic growth, including leveraging comparative advantages and strategically investing in import substitution.
Trade diversion
The current global trade landscape, marked by its uncertainty, geopolitical realignments and the imposition of fluctuating tariffs, presents the Philippines with a unique strategic window. Specifically, the potential for trade diversion, in which importers seek alternative sources due to tariff differentials, offers the Philippines a significant opportunity to expand its export markets within the US and other countries as well.
The Philippines’ comparatively favorable tariff rates on specific goods entering the US market could translate into a substantial competitive advantage for key industries. Sectors such as coconut product manufacturing, copper refining, integrated circuit fabrication, pharmaceutical production, gold mining, and the extraction and processing of other mineral resources are well-positioned to experience notable growth. Other industries may have growth potential, too.
Success, however, hinges on the Philippines’ ability to rapidly scale production to meet the anticipated demand surge.
Strategic approach
To capitalize on this opportunity and strengthen its global market position, the Philippines must adopt a strategic, multifaceted approach. This includes: 1) resolving critical infrastructure gaps in transportation, energy and digital connectivity; 2) streamlining bureaucracy (which is ongoing) and increasing regulatory transparency to improve the business environment; 3) investing in technology, innovation and workforce development to support high-value manufacturing and exports; and 4) diversifying its industrial base to mitigate sectoral overreliance.
By prioritizing these actions, the Philippines can convert current trade volatility into sustainable economic growth.
To navigate global trade wars, small, open economies like the Philippines must adopt a strategic, multifaceted approach. Instead of risky unilateral retaliation, coordinated negotiation within regional blocs like Asean and Free Trade Agreements is crucial. Building strategic alliances with similarly positioned nations strengthens bargaining power, enabling advocacy for fair trade and equitable market access.
Furthermore, the Philippines must also proactively mitigate the adverse impacts of tariffs, such as increased input costs, which threaten domestic production, inflation and competitiveness. Effective strategies include diversifying supply chains, providing targeted support to affected industries through subsidies and tax incentives, and investing in research and development to enhance domestic production and promote import substitution.
To thrive in the volatile global trade landscape, the Philippines must prioritize long-term competitiveness and sustainable growth. This requires a strong government-business partnership focused on improving the investment climate, boosting productivity and meeting rigorous global quality standards.
Mark Anthony P. Tamayo is a CPA lawyer and a partner of Mata-Perez, Tamayo & Francisco Law Offices (MTF Counsel). He is a recipient of the 2016 Asia Tax Practice Leader award and is consistently voted as one of the recognized indirect tax leaders in the Philippines by the International Tax Review. You may reach him at info@mtfcounsel.com or visit the MTF website at www.mtfcounsel.com.