The Philippines are one of the economies in Asia that run the risk of running through overflow effects of the plan of US President Donald J. Trump to impose mutual rates on trading partners, analysts said.
The Nomura Global Markets report noted that emerging Asian economies have higher rating rates at American exports, “so the risk of higher mutual rates.”
“More than 90% of India exports, the Philippines, Thailand and China (intended for the US) have higher relative rate rates and therefore are the most risk of higher mutual rates,” said Nomura Global Markets Research in a report.
Data from Nomura showed that 100% of Filipino export to the US can be subjected to higher rates, which represents 2.6% of gross domestic product (GDP).
Mr. Trump said on Monday that he would announce plans to impose mutual rates on other countries in the next two days, Reuters reported.
Mr. Trump made the statement after signing two proclamations that terminate all exclusions on steel and aluminum rates that were first imposed during his first term and raising tasks on both metals to 25%. ((Read related story “In the Last Trump War Salvo, Trump increases rates on aluminum, steel import”.))
Mr. Trump said he also looked at rates at cars, semiconductor chips and pharmaceutical products.
Mutual rates would mean that the US will impose the same rate percentage on imports from other countries as other countries impose on American exports.
Leonardo A. Lanzona, Professor Economy at Ateneo de Manila University, said that the “Tit-for-TAT” policy “can cause disturbances in the global supply chains, which can lead to higher prices for all traded goods and services”.
“Since China is an important supplier of intermediary goods and consumer products for the Philippines, any disruption or rise in prices as a result of rates or retaliation policy can lead to higher production costs for Filipino companies,” he said in an e-mail.
“This in turn can contribute to inflation or compelling companies to look for alternative (and possibly more expensive) suppliers,” he added.
China is usually the largest source of import of Philippines, while the United States is the best destination in the country for export.
“Moreover, the United States is an important market for Filipino export. If the trade tensions between the US and China slow down the US economy or lead to a broader global economic uncertainty, the question in the US could weaken, “Mr Lanzona said.
“This would negatively influence the Filipino exporters, especially in sectors such as electronics, clothing and agricultural products,” he added.
Nomura said it is unclear whether Mr Trump would hit higher mutual rates per sector or across the board.
“If Trump uses a sectoral approach, even countries with a lower weighted average rate rates can be subjected to higher rates in specific sectors,” Nomura said.
“We expect Asian economies to drive up their negotiations with Mr. Trump,” it added.
Nomura data showed that the Philippines had an weighted on average effective rate of 3.3% for American exports to the Philippines versus the rate percentage of 1.4% in the Filipino export to the US.
The majority of Filipino exports to the US are machines and electronics, accounting for 67% of the total export.
Nomura noted that most developing Asian economies impose higher rates on agricultural products and transport.
However, the Filipino export of agricultural and transport products to the US is much lower than its neighbors, good for 0.2% and 0.1% of the gross domestic product (GDP) respectively.
Nomura noted that sectors with higher relative rate rates are plastic and rubber for the Philippines and footwear and various production for Thailand.
It said that Thailand is seen as the “biggest loser” in Southeast Asia in the midst of high exposure to agriculture and transport.
“The export of agricultural products from Thailand to the US comprises 0.8% of Thai GDP and transport products include another 0.5%.”
In the meantime, Indonesia, Malaysia and Vietnam are being seen as in the ‘center of the pack’, while the least exposed economies in the region are Singapore and South Korea.
Mr Lanzona said that the government should assume strategies to dampen the economy of shocks arising from the tariff regime, such as negotiating trade agreements, offering support for affected industries or investing in domestic production.
“What is even more important, by promoting products that can be produced locally, the country can reduce its dependence on imported input – in particular on countries such as China – which reduces exposure to external trade disturbances,” he said.
“Strengthening domestic production can help create robust, locally controlled supply chains that are less susceptible to international tariff disputes or global market fluctuations.”
FX -Print
In the meantime, Anz research in a separate report marked the impact of rate policy on currencies in Asia.
“Depending on any exemption from the short term in the local markets of Asia, the risk of trading rates will linger on Asian economies,” said it.
“Markt stress is visible in an increased demand for FX (foreign exchange) coverings and safe port activa. ASIA FX remains the vulnerable link in an environment of rising trading tension and the weakening of domestic growth impulse, ”it added.
Anz said that currencies are the “most important transmission channel to view”, because currencies in the region are vulnerable to a trade war in China.
“The resulting risk-off tone of an increased trading tension would also support support from the safe port demand to the US dollar. In our opinion, no Asia FX markets would be spared meaningfully in a trade war in the US-China, “it added.
The PESO closed on P57.845 against the dollar at the end of the 2024, with which P2.475 or 4.28% was written off from the end-2023 finish of P55.37. – Luisa Maria Jacinta C. Jocson