US slaps higher tariff on Philippines

US president Donald J. Trump is imposing a bigger-than-expected tariff on Philippine exports to the United States, as part of a broader reciprocal tariff plan that will apply to all its trading partners.

However, Philippine government officials downplayed its impact, saying this was still lower than tariffs imposed on the rest of Southeast Asia.

Finance Secretary Ralph G. Recto said on Thursday that the Philippine economy, which is mainly driven by domestic demand, is “relatively resilient” against trade wars.

“However, 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,” Mr. Recto said in a statement.

Trade Secretary Cristina A. Roque said the reciprocal tariffs can provide opportunities for the Philippines as regional competitors will be subjected to higher tariffs.

“We view with guarded optimism that the recent US imposition of reciprocal tariffs will provide strategic opportunities for the Philippines to improve its economic relationship with the US,” she said in a statement.

Ms. Roque said she will request a meeting with her US counterpart to discuss “strengthening” trade relations between the two countries.

On Wednesday, Mr. Trump announced a 10% tariff on all its trading partners, which will take effect on April 5.

The US will also slap individualized higher reciprocal tariffs on major trading partners including the European Union, China, Japan, South Korea and the Philippines, starting April 9.

“Foreign nations will finally be asked to pay for the privilege of access to our market — the biggest market in the world,” Mr. Trump said.

According to an infographic posted by the White House on X, the Philippines will be slapped with a 17% “discounted reciprocal tariff” as the Philippines charges a 34% tariff on the US.

However, an annex document to the executive order on reciprocal tariffs showed the adjusted reciprocal tariff for the Philippines is at 18%.

It was not immediately clear why there was a discrepancy in the tariff rates in the infographic posted on X and the annex document posted on The White House website.

Nonetheless, Philippine officials cited the 17% tariff rate in their press statements.

Among Southeast Asian countries, Cambodia faces the steepest tariff at 49%, followed by Laos (48%), Vietnam (46%), Myanmar (45%), Thailand (37%), Indonesia (32%), Malaysia (24%) and Brunei (24%). Singapore will be imposed a baseline tariff of 10%.

“The imposition of the 17% tariff, which is the second lowest, is not so bad in our opinion. We still see it as somewhat favorable,” Presidential Communications Office Undersecretary Clarissa A. Castro said at a Palace briefing in mixed English and Filipino.

Agriculture Secretary Francisco P. Tiu Laurel, Jr. said the Philippines could take advantage of the relatively lower tariff rate compared with its neighbors to “push for more sales to the US of our products.”

“The new tariffs also put the Philippines in a more advantageous position, more specifically for certain export products like coconuts. With lower tariffs than Thailand, Philippine coconut exports can be more competitive,” Ms. Roque said.

Ms. Roque noted that there are Philippine products that will be exempted from reciprocal tariffs, including copper ores and concentrates and integrated circuits.

According to a White House fact sheet, the reciprocal tariffs will not apply to certain goods, such as semiconductors, copper, pharmaceuticals, gold, and “certain minerals that are not available in the US.”

However, agri-based products, particularly food exports, are not exempted from reciprocal tariffs.

“The recent US measure has made US imports more expensive so that their domestic manufacturers can compete. Equally important for the US is to improve its access to rapidly growing economies such as the Philippines,” Ms. Roque said.

“In this regard, the Philippines aims to actively engage the US in a discussion to facilitate enhanced market access for its key export interests, such as automobiles, dairy products, frozen meat, and soybeans, within the framework of a bilateral free trade agreement.”

Special Assistant to the President for Investment and Economic Affairs Frederick D. Go said some investors may relocate and set up manufacturing facilities in the Philippines, given the relatively lower tariffs on Philippine exports to the US.

Trade Undersecretary Allan B. Gepty said it is important to maintain “good relations” with the US. “It would be good to see how we can seize opportunities from the possible trade diversion and recalibration of some investments in the region,” he said.

‘GAME CHANGER’

Fitch Ratings Head of US Economic Research Olu Sonola said Mr. Trump’s aggressive tariffs are a “game changer, not only for the US economy but for the global economy.”

“Many countries will likely end up in a recession. You can throw most forecasts out the door, if this tariff rate stays on for an extended period of time,” Mr. Sonola said.

Higher tariffs may also drive up prices and hurt demand for Philippine-made goods in the US.

“The US is the biggest export market of the Philippines, so this will have a drag on Philippine growth,” former commissioner of the Philippines Tariff Commission George N. Manzano said in a Viber message.

In 2024, the US was the top destination for Philippine exports, accounting for 17% of the total.

“US importers will put on all these additional tariffs to the selling price in the US,” Foreign Buyers Association of the Philippines  President Robert M. Young said.

“The end result of this is that the Philippines will have difficulties in getting export orders due to lesser or no demand,” he added.

Asked if the Philippines could benefit from the higher tariffs imposed on other countries, Mr. Young pointed out that Philippines has higher costs.

“To start with, the Philippines was selling at a higher price than Vietnam, India, and Cambodia. Meaning, Philippine goods will be the last to be picked up from the shelves,” he said. “Also, Vietnam acted swiftly by reducing their tariff on US goods coming into Vietnam.”

The Philippines exported $12.14 billion worth of commodities to the US in 2024. Of the total, 53% or $6.43 billion were electronic products.

“Electronics and semiconductors, which comprise the bulk of Philippine exports to the US will be vulnerable. Apparel, footwear, and textile products, which rely on preferential trade agreements, may also face competitiveness issues,” Philippine Institute for Development Studies Senior Research Fellow John Paolo R. Rivera said.

“Agricultural exports, such as coconut oil, processed fruits, and seafood, could see a decline in demand due to price sensitivity in the US market,” Mr. Rivera said.

Mr. Rivera noted the direct impact on Philippine gross domestic product (GDP) may not be “immediately severe.”

“It’s a prolonged tariff war could dampen investment sentiment and export growth. If businesses pass on higher costs to consumers, inflation may spike,” he said.

The Development Budget Coordination Committee is targeting 6-8% GDP growth this year. It is also projecting 6% and 5% growth in exports and imports, respectively, this year.

In a report, ANZ Research said it estimated that the reciprocal tariffs could have a “milder impact” on the Philippines, along with Indonesia and India, due to their lower reliance on exports.

“Our understanding is that these tariffs are not final and can be negotiated lower, depending on the extent of reduction in the bilateral trade surplus with the US,” ANZ said.

Data from the Office of the US Trade Representative showed that bilateral trade between the Philippines and the US reached $23.5 billion in 2024 — comprising $9.3 billion in US exports and $14.2 billion in imports.

The US goods trade deficit with the Philippines was $4.9 billion in 2024, up 21.8% from last year.

To mitigate the negative effects of the tariffs, Mr. Young said that “there should be a joint best effort from the Philippine government and private sector to turn their heads to other potential export markets.”

Department of Trade and Industry-Export Marketing Bureau Director Bianca Pearl R. Sykimte said that the department is already looking at new export markets such as in the Middle East and Africa.

Confederation of Wearables Exporters of the Philippines Executive Director Ma. Teresita Jocson-Agoncillo said that the reciprocal tariffs will be imposed on top of the most favored nation (MFN) apparel rates.

“It’s better for us to wait for the US side to publish guidelines. As it looks the reciprocal tariff will be MFN rates plus 17%,” she said in a Viber message. “There is still an advantage, as the Philippines has the lowest (tariff) now, against ASEAN (Association of Southeast Asian Nations) counterparts but note that in the end it can still impact global sourcing and supply chain movement.”

Source: Business World

Below-target growth likely in 1st half of 2025

Philippine economic growth is likely to fall short of the government’s target in the first two quarters, GlobalSource Partners said.

“Our assessments show that GDP (gross domestic product) may be expected to increase within a narrow band over the next two quarters — rising from just above 5.7% in first quarter to approximately 5.9% in second quarter,” GlobalSource country analysts Diwa C. Guinigundo and Wilhelmina C. Mañalac said in a report.

This would be below the Development Budget Coordination Committee’s (DBCC) 6-8% target band until 2028.

GlobalSource’s first-quarter growth forecast of 5.7% would be slower than the 5.8% print in the same period in 2024.

For the second quarter, GlobalSource’s 5.9% GDP growth projection would be slower than the 6.4% print in the same period in 2024.

“This modest upward trend is driven by resilient historical GDP performance, growth in the services sector, and short-term USD/PHP exchange rate effects,” GlobalSource said.

However, local and geopolitical risks may affect the growth outlook in the first half.

“If both domestic and geopolitical shocks occur in a big, adverse way, they could unsurprisingly alter the outcome of this initial analysis,” GlobalSource said.

National Economic and Development Authority (NEDA) Secretary Arsenio M. Balisacan earlier this month said government growth targets may need to be revisited amid rising global economic uncertainty.

“It’s too early to change at this point but we need to be watchful and be flexible because of this uncertainty,” he said.

A DBCC meeting is scheduled to be held at the end of March.

Budget Secretary and DBCC Chair Amenah F. Pangandaman has said that the committee historically keeps its target unchanged during the first and second quarters of the year.

Earlier, Finance Secretary Ralph G. Recto said that “6-6.5% [growth] is doable for 2025.”

However, GlobalSource said the Philippine economy should grow faster than the DBCC’s 6-8% target.

“The economic scarring of the pandemic actually requires the Philippines to grow by much more than the targeted growth rates of 6-8% through the end of the Marcos administration. Persistent poverty and income inequality are additional imperatives to grow by much more,” it said.

During the MAP Economic Briefing and General Membership Meeting on March 12, Mr. Guinigundo said that Philippine GDP growth of 6-8% annually would bring the economy to around P60 trillion by 2036

“To overcome this setback, growth will have to be between 9% and 9.5% through 2028 to be able to return to the original growth path,” he said.

In 2024, the economy expanded by 5.6%, from the 5.5% print in 2023 amid subdued consumption and lower farm output. It fell short of the government’s revised 6-6.5% target.

“It’s easy to blame the onslaught of typhoons during the latter part of the year, which constrained economic expansion. Such weather disturbances could indeed explain part of the failure, but not the entire dynamics,” GlobalSource said.

The economy grew by 5.2% in the fourth quarter, slower than the 5.5% print in the same period in 2023 after a series of typhoons hurt agricultural output.

“Sufficient stock buffering, mangrove propagation, zonal building along the coasts could have also mitigated the effects of these supply shocks. Yes, food inflation likewise deterred economic growth because private consumption spending was generally restrained,” GlobalSource said.

NEDA Undersecretary for Policy and Planning Group Rosemarie G. Edillon attributed the weaker-than-expected GDP growth in 2024 to “extreme weather events, geopolitical tensions, and subdued global demand.”

Source: Business World

Land-area minimums imposed for pharma economic zones

The Philippine Economic Zone Authority (PEZA) said pharmaceutical economic zones (pharma zones) must be built on sites with an area of at least 10,000 square meters (sq.m.) in major cities.

According to PEZA Board Resolution No. 25-050, the minimum size applies to pharma the minimum contiguous land area for pharma zones in the National Capital Region (NCR) and other metropolitan areas.

The minimum land requirement for pharma zones outside the NCR and other metropolitan areas is 50,000 sq.m.

“The release of the guidelines provides clear direction on the establishment of pharma zones,” PEZA Director General Tereso O. Panga said.

“These zones are expected to attract substantial pharma, medical, and healthcare-related investments, advanced technology, and increase local production and research — creating numerous jobs and enhancing the country’s export potential — positioning the Philippines as a competitive player in the global pharmaceutical market,” he added.

According to the investment promotion agency, the board approved the guidelines in a meeting late last month.

“The move was in response to the directives of President Ferdinand R. Marcos, Jr. to make medicines more accessible to the Filipino people and to encourage more local producers to boost their R&D and manufacturing capabilities and lower drug costs for the general public,” PEZA said.

Aside from the land area requirements, the guidelines also outlined the preferred investments that can be registered with PEZA to avail of incentives on offer for pharma zones.

These activities include research, development, and manufacturing of medical drugs and devices, active ingredients, biologicals, vaccines, in vitro diagnostic reagents, and radiation-emitting devices or equipment.

“This shall include activities related to raw materials, packaging materials, and other pharmaceuticals, medical devices, or health products as may be certified by the FDA (Food and Drug Administration),” according to the resolution.

It added that the “pharma zone registered business enterprise (RBE) shall efficiently operate and contribute to the development of the preferred area in particular and of the national economy in general.”

Under Title XIII of the Tax Code, fiscal incentives that pharma zone RBEs are eligible for include income tax holidays, special corporate income tax, and enhanced deductions regimes, among others.

Aside from the fiscal incentives, the RBEs can also employ foreign nationals in executive, supervisory, or advisory positions, with PEZA visas allowing multiple entry issued to non-resident foreign nationals and their qualified dependents.

They can also enjoy streamlined processing of applications for environmental compliance certificates and applications for permits, licenses, or certifications, and simplified customs procedures.

However, the resolution clarified that partially developed or existing economic zones, facilities, and existing RBEs are not entitled to the incentives.

Source: Business World