CEBU – “Tit-for-tat” retaliatory tariffs could hurt growthsearch for the Asia-Pacific region, This is reported by the International Monetary Fund (IMF).
“In a region like Asia, which has benefited greatly from globalization and greater integration with the rest of the world, any form of tariff or trade restrictions will have an impact,” said Krishna Srinivasan, director of the Asia Pacific Department Ocean of the IMF. said during the Bangko Sentral ng Pilipinas (BSP)-IMF Systemic Risk Dialogue on Tuesday.
“Our analysis shows that in the long term everyone will be affected, because the size of the pie becomes so much smaller. So every country, including the Philippines, will be hurt in the long run.”
Mr Srinivasan said “tit-for-tat retaliatory tariffs” could threaten growth prospects across the region as it could disrupt supply chains.
“When there is fragmentation, which relates to trade and investment and so on, all the work we have done shows that in the long run it hurts every country.”
Global trade could be disrupted if newly elected US President Donald J. Trump follows through on his campaign promise to impose a 60% tariff on Chinese goods and a tariff of at least 10% on all other imports.
Such a move could fuel inflation and derail the Federal Reserve’s easing cycle, as well as negatively impact growth in exporting countries like the Philippines.
National Economic and Development Authority Secretary Arsenio M. Balisacan earlier said that Mr. Trump’s tariff plan is one reason for that concerns due to the potential impact on the global economy.
The Philippines is highly dependent on the United States for business and economic activities as it is the main destination for Philippine-made goods and the largest source of remittances from Filipino workers abroad.
“If China slows down because of fragmentation, it will affect you. If the US slows down, you will be affected,” Mr Srinivasan said.
“In any case, all countries will suffer in the long term from fragmentation and the risks we have seen have only increased in recent years,” he added.
Escalating trade tensions could impact financial markets, raise trading costs and affect domestic demand, Mr Srinivasan said.
In its World Economic Outlook, the IMF expects economic growth in Asia to average 4.4% in 2025, faster than the 3.2% growth for the global economy.
IMF data shows that Asia is expected to contribute about 60% of global growth this year.
“Growth prospects in Asia remain robust and inflationary pressures have eased, thanks to the ability of the region’s central banks to anchor inflation and inflation expectations.to implement effectively,” said Mr. Srinivasan.
The IMF expects the Philippine gross domestic product (GDP) to grow 6.1% in 2025.
On the other hand, BSP Governor Eli M. Remolona Jr. said the exact spillover effects of Mr. Trump’s policies in the Philippines remain to be seen.
“We don’t know exactly what the rates will be because of the size of the rates being considered. We don’t really know what the consequences will be. So we have to wait and see and we will figure it out,” he said.
The BSP chief said the country’s balance of payments is less likely to be affected by tariff measures.
“In the case of the Philippines, our BoP shows that our services exports are as large as our goods exports. Exporting our services, you have revenue from business process outsourcing (BPO) and then we have remittances from abroad,” he said.
“These are less easily subject to tariffs because BPO business for these things goes through the Internet. While the money is being transferred, the workers are abroad or on ships. So maybe we are a little bit insulated from the tariffs.”
Mr Remolona also noted the impact of the tariff restriction on Chinese-made goods.
“At the same time, China remains our main source of imports to the Philippines. If these imports cannot easily enter the United States, they may be able to send us more of those imports, probably cheaper imports than before. Those are kind of second-round effects that we have to figure out.”
OTHER RISKS
Meanwhile, Mr. Srinivasan also pointed out the risks posed by less regulated, non-bank fifinancial institutions (NBFI) pose a threat to the overall financial system.
“These developments could amplify negative shocks, especially given the deteriorating risk landscape and increased uncertainties with significant implications for financial stability.”
“For example, non-bank financial institutions, which are more flexible and subject to fewer restrictions, can use AI in many ways, which poses challenges for financial regulators.”
Mr Remolona also points to the rapid growth of NBFIs.
“The non-bank financial sector has grown noticeably since the global financial crisis. On the one hand, this is welcome news as it addresses some of the concentration risks arising from over-reliance on the banking sector,” he said.
The latest data from the BSP shows that NBFIs’ total resources increased 5.3% to P5.525 trillion as of end-June from P5.248 trillion a year ago.
“On the other hand, financial markets are never an ‘either-or’. There is a lot of diversity within non-bank financial institutions, just as there are interconnections with non-banks and banks,” said Mr Remolona.
“When exchanging interconnections, their opportunities and risks should be of great interest to regulators and practitioners.” — Luisa Maria Jacinta C. Jocson