Imminent trade war

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When America sneezes, the rest of the world catches a cold. After all, the US economy accounts for nearly 24 percent of global GDP. The dollar is still the leading reserve currency, accounting for 60 percent of international foreign exchange reserves. The US is also the world’s largest importer, even bigger than China.

US President Donald Trump just announced that the US is imposing discounted reciprocal tariffs in retaliation for what he describes as unfair treatment by the world on US products.

How this will impact the global trade landscape remains to be seen, but what is sure is that a number of countries are going to impose retaliatory measures, making it more expensive for US products to enter.

Trump wants the US to be exporting more and importing less. He wants to bring manufacturing capacity back to US shores in sectors such as pharmaceuticals, semiconductors and cars, not only to create more jobs for Americans but also to cut down its one trillion dollar trade deficit.

If the higher tariffs are going to be imposed on all US trading partners and everyone retaliates with increased duties on US exports, the global impact will be devastatingly enormous. A global trade war seems inevitable.

The reciprocal tariffs vary, but the baseline tariff for all countries is ten percent effective April 5. More than 60 countries considered by Trump as the worst offenders will have higher tariffs beginning April nine, and these include the Philippines, which will be slapped with a 17 percent tariff or half of the 34 percent (import duties plus value-added tax) that it imposes on US products.

A number of ASEAN countries are on the list: Indonesia, which has been imposing 64 percent tariffs on the US, will be levied 32 percent; Thailand 36 percent (charges US 72 percent), Malaysia 24 percent (vs 47 percent on exports from the US), Cambodia 49 percent compared to 97 percent duties on US exports, Vietnam 46 percent (vs 90 percent), Singapore 10 percent or same as what it imposes on US exports, Myanmar 44 percent vs 88 percent and Brunei 24 percent vs 47 percent.

Cambodia is on top of the list at 49 percent, even higher than China’s 34 percent, the European Union’s 20 percent, Japan’s 24 percent and the United Kingdom’s 10 percent.

The US Trade Representative said the simple average bound tariff in the Philippines is 25.7 percent. It noted that high in-quota tariffs for agricultural products under the Philippines’ tariff-rate quota program significantly inhibit US exports to the Philippines.

In-quota tariffs range from 30 to 50 percent, with sugar having the highest in-quota tariff at 50 percent, followed by rice, poultry and potatoes at 40 percent, 35 percent for corn’s in-quota rate and pork and coffee, 30 percent.

The Philippines also imposes higher tariffs on finished automobiles and motorcycles, including a 30 percent tariff on passenger cars, 20 percent to 30 percent on vehicles for transport of goods and 15 percent to 20 percent on those for transport of goods.

Other technical barriers to trade imposed by the Philippines include sanitary and phytosanitary barriers, quantitative restrictions on rice imports, safeguards imposed on chicken imports, customs barriers including corruption and irregularities in customs processing, government procurement, subsidies for export-oriented investments, reports from US intellectual property rights holders on increasing internet-based piracy, counterfeit drugs and also services barriers.

The US goods trade deficit with the Philippines was $4.9 billion in 2024, a 21.8 percent increase over 2023.

Experts in the Philippines expect sectors that could possibly be slapped with reciprocal tariffs to include transportation goods and animal products, but the 17 percent tariff on the Philippines turned out to be all-sweeping.

The inclusion of the Philippines on the list of countries targeted by the US for reciprocal tariffs came as a big surprise for many who expected that the former would be spared, considering that the trade deficit is minimal compared to other countries and, more importantly, that the Philippines considers America a friend and big brother.

Experts in the Philippines didn’t see this coming. They couldn’t have been more wrong.

Earlier, the Department of Trade and Industry expressed confidence that the Philippines would not be affected by reciprocal tariffs.

DBS Bank said that the Philippines would experience moderate spillover effects from US tariff policies and that the domestically oriented nature of the Philippine economy shields it.

In terms of direct impact on growth, DBS estimates that the tariffs will only be a negligible risk to Philippine economic output. It said that while the US is an important trade partner (accounting for 16.6 percent of the total), exposure to targeted sectors like pharmaceuticals and semiconductors is modest.

The US is the top destination for Philippine exports. Philippine exports to the US accounted for nearly 17 percent of total export sales in 2024, while imports from the US were only 6.4 percent of total imports.

Meanwhile, S&P Global Ratings said that the Philippines would be less affected by US tariff policies compared with its Asia-Pacific neighbors.

BusinessWorld also quoted ANZ Research chief Sanjay Mathur as saying that the direct impact of the Trump administration’s move on the Philippines is quite mild relative to other economies due to the low tariff differential with the US and the smaller share of trade in gross domestic product, which provides insulation.

But he warned of secondary impacts if tariffs result in slower global trade growth, with uncertainty weighing on investment activity.

The same report also cited BMI country risk analyst Shi Cheng Low as saying that Trump’s reciprocal tariff threats pose clear downside risks to growth for the Philippines as higher tariffs could make the country’s export goods more expensive and less competitive in the US market.

The new tariff policy can also make Philippine imports from the US more expensive.

With potentially higher costs of exports to the US and higher prices of imports from the US, the Philippines will clearly be at a huge disadvantage. Countries with which the US has large trade deficits will definitely see their economies suffering at least in the short term, which means that they will also be buying less from other economies, including the Philippines.