[Vantage Point] Can the Philippines endure economic pain with Trump’s tariff?

From the exterior, it looks like just another bombastic policy move from Trump. But deep inside the headlines, his sudden imposition of a sweeping 20% tariff on all imports from the Philippines may have just set off an economic tremor, the aftershocks of which will be felt far beyond the gleaming floors of Manila’s malls and the export zones of Cavite and Cebu. It’s a move that is rich with political symbolism, strategic miscalculation, and painful irony. And it may test — like never before — the true resilience of ordinary Filipinos, both here and abroad.

First, let’s put it in perspective. The Philippines does not run a massive trade surplus with the United States. In fact, trade between the two countries has long been characterized as relatively balanced, even friendly — a legacy of its post-colonial and military ties. In 2024, Philippine exports to the US totaled around US$14 billion, consisting largely of electronics, semiconductors, garments, and agricultural goods like bananas and canned tuna. In return, the country imported over $9 billion worth of American goods: aircraft parts, soybeans, corn, machinery, and consumer products. This trade imbalance around $5 billion in the Philippines’ favor  – is minuscule compared to the yawning chasms the US faces with China or Mexico. So why target the Philippines?

Let’s start with the most direct hit: Philippine exporters. Many of the country’s exporters operate on thin margins, and the imposition of a 20% tariff instantly renders them uncompetitive in the US market, unless they slash prices or absorb the costs — neither of which is sustainable for small or mid-sized firms. Garment factories in Mactan and Batangas, for instance, which rely on bulk orders from American brands like Nike or Under Armour, are already scrambling to renegotiate contracts or reroute shipments. Electronics manufacturers, which make up over half of the country’s exports and operate under complex supply chains involving Taiwan and Japan, now face uncertainty over whether their goods — often labeled as “Philippine-made” — will be blacklisted by US Customs or subject to delays.

The consequences for employment cannot be overstated. Over 500,000 Filipinos are employed directly or indirectly in export-related industries. If orders from the US dry up or are rerouted to competitors like Vietnam — now enjoying a negotiated 20% tariff cap on certain exports — or even Indonesia — despite facing a steep 32% duty — Philippine exporters could quickly find themselves priced out of critical supply chains. Mass layoffs are a distinct possibility, especially in labor-intensive sectors like garments and electronics assembly. That spells trouble for a Philippine economy already teetering from global inflation, climate-related disasters, and an overstretched fiscal budget in the aftermath of the pandemic.

The Philippine business process outsourcing (BPO) industry — the country’s crown jewel in services exports and the second-largest source of US dollar income after remittances — also stands exposed to collateral damage from Trump’s tariff barrage. While BPO services themselves are not physically traded goods and therefore not directly subject to tariffs, the industry is inextricably tied to US corporations, which account for more than 60% of its client base. These firms, especially in banking, insurance, healthcare, and retail, are under cost pressures due to new supply chain disruptions and inflation from retaliatory duties in other countries. That means fewer outsourced contracts, stricter pricing, and tighter performance benchmarks.

Moreover, Trump’s “America First” rhetoric has historically included calls to bring back American jobs from overseas, including call centers and tech support. This could once again translate into political pressure on US firms to onshore previously outsourced functions. Even if there’s no formal policy shift, the chilling effect alone may cause hesitation among US companies considering further expansion of their Philippine BPO operations. This hesitation could stymie job growth in the country’s fastest-growing urban economies — from Metro Manila to Iloilo and Davao — and dampen plans to move up the value chain toward higher-paying knowledge process outsourcing (KPO) services like legal research, animation, and software development.

Another brewing flashpoint in the US-Philippine economic relationship lies in taxation: specifically, the Philippine government’s move to impose value-added tax (VAT) on US-based digital services. In 2024, the Bureau of Internal Revenue (BIR) began requiring platforms, such as Netflix, Amazon, Google, Facebook, and Microsoft, to register and remit 12% VAT on revenues earned from Philippine users. The measure was hailed locally as a way to level the playing field for local digital firms and raise much-needed revenue. But in Washington, it’s viewed as a discriminatory digital tax targeting American tech giants — exactly the kind of policy Trump abhors.

If tensions escalate further, US tech firms operating in the Philippines — from Google and Facebook to Amazon Web Services — could respond by scaling down services, raising costs, or passing the VAT burden onto Filipino consumers. Worse, if the Trump administration pressures these companies to curtail operations, restrict access to cloud services, or limit digital payment platforms, the shockwaves could destabilize Philippine e-commerce, remote work ecosystems, and thousands of online jobs that depend on US-based infrastructure. The economic fallout could extend far beyond tariffs, threatening the very foundations of the country’s digital economy.

Still, the bigger question in most Filipinos’ minds is likely this: Will the beloved overseas Filipino workers’ (OFW) remittances be affected? With over four million Filipinos living and working there, the US remains the single largest source of dollar remittances to the Philippines, contributing over $14 billion a year. These funds keep families afloat, paying for house rent and school tuition, financing sari-sari stores and supermarkets, and buying everything from apparel to motorcycles.

Can the Philippines blame Trump for putting America first? It’s a tricky question, and one that requires a measure of uncomfortable self-reflection. The Marcos Jr. administration, like many before it, has declared “Filipino First” policies in agriculture, retail, and natural resources. Filipino companies receive tariff protection and subsidies; foreign ownership is limited in key sectors. The Philippines has defended such measures as necessary for its development. Trump, with his zero-sum worldview, is simply applying the same logic – albeit with a sledgehammer instead of a scalpel.

The irony is bitter. For decades, the Philippines has bent over backward to please the US, from supporting its wars to hosting military exercises to aligning with its geopolitical interests. The Visiting Forces Agreement (VFA) remains intact. American companies receive preferential tax treatment in special economic zones. And yet, in a heartbeat, Trump has shown that friendship has limits when populism and power politics are involved.

The Marcos government now finds itself at a crossroads. Will it retaliate with tariffs of its own, risking a trade war it cannot win? Or will it swallow its pride and pursue diplomacy instead? According to Ambassador Romualdez, Manila is already preparing to press Washington to reduce the newly imposed 20% tariff, with senior officials — including Presidential Assistant Go — set to travel to Washington for negotiations ahead of the August 1 enforcement date.

Behind closed doors, the Marcos administration is exploring multiple tracks: lobbying Filipino-American communities and influential US corporations — many of which will see their supply chains disrupted — as well as leveraging diplomatic channels to gain exemptions for key export sectors. The Department of Trade and Industry (DTI) has reportedly begun laying the groundwork for these efforts. Even so, without real leverage, aside from its limited share of the massive US market, the Philippines may struggle to shift the calculus of a mercurial American president whose policies have rarely heeded traditions of alliance or reciprocity.

In the long run, this could be the jolt our country needs to diversify its export markets and finally invest in building domestic capacity, instead of relying on low-cost labor and offshore remittances. It may also force a national conversation about how much longer the Philippines can remain in the shadow of US economic policy, without a clear industrial strategy of its own.

But that is cold comfort to around 2.7 million OFWs and their families. Anxiety is the unwanted blanket that weighs down heavily on approximately 7% of Filipino households which have at least one family member working abroad, particularly those whose breadwinners are now staring at pink slips, whose businesses may lose contracts, or whose economic dreams — however modest — are now subject to the whims of a leader thousands of miles away.

In this trade war, the Philippines may not be the main target, but it is definitely caught in the crossfire. – Rappler.com