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An intensifying global tariff war would provide the Philippines with trade rerouting opportunities that the country may not fully take advantage of due to its underdeveloped logistics sector.
As United States (US) President Donald Trump's tariffs target economies where significant export flows originate, "producers could divert shipment from high-tariff economies such as Vietnam and Cambodia through lower-tariffed economies if the cost differential makes sense," Oxford Economics economists Sheana Yue and Adam Ahmad Samdin said in an April 11 report sent to journalists on Monday, April 14.
Besides Singapore, which will be imposed with the minimum 10-percent baseline tariff and is an established re-exporting hub in Southeast Asia, Oxford Economics said that "the Philippines and Malaysia might also be able to capture some of the diverted trade flows looking to avoid ports with higher tariffs."
Oxford Economics noted that the Philippines' 17-percent and Malaysia's 24-percent reciprocal tariffs are among the lowest in the Association of Southeast Asian Nations (ASEAN) and are lower than the global average of 27 percent.
In contrast, the hardest-hit Cambodia and Vietnam face 49 percent and 46 percent, respectively.
However, "the Philippines will probably not gain much from re-routing given its less developed trade logistics sector," Oxford Economics said.
On the other hand, "Malaysia could benefit given [its] government's continuous commitment to trade infrastructure projects," the think tank added.
It would nonetheless help the Philippines that "the relatively larger size of domestic spending in the [country] buffers its economy against external volatility from an almost 20-percent export exposure to the US," according to Oxford Economics. The US is the Philippines' top export market.
Across the region, Oxford Economics noted that "ASEAN also benefits from its interlinked regional hubs of production," especially its semiconductor supply chain.
"High-end chips are typically fabricated in Taiwan, South Korea, or Singapore before being sent to Malaysia or China for advanced assembly, testing, and packaging. Low-end chips produced in China or Malaysia could be packaged in the Philippines or Vietnam. The chips are then sent elsewhere—usually also in Asia—for assembly into final consumer electronic products," it noted.
For Oxford Economics, Trump's postponed "Liberation Day" tariffs "will have significant consequences for ASEAN if they are eventually implemented" after the three-month pause.
"Given the extreme uncertainty, high fixed-asset investment costs, and the region's strong labor cost advantages, we doubt ASEAN supply chains can adjust quickly," it warned.
While the regional grouping is considering a unified response to the tariff threat, Oxford Economics lamented that "ASEAN governments lack the tools to negotiate lower tariffs with the US."
"Average effective tariffs on US imports are already low, [the region's] population is much poorer than the US, and most have little ability to increase investment into the US. Their ability to implement retaliatory tariffs is also limited. These factors reinforce our view that higher tariffs, if imposed, will remain in place," the think tank said.
