What can Filipinos expect from Marcos and Trump's 19% tariff rate, trade deal? Economists weigh in

As regards the new tariff rates on the Philippines, Ricafort noted that it “does not come as a complete surprise,” especially since the American leader had subjected other ASEAN countries to such.

But in his research, Ricafort pointed out that among ASEAN countries, the Philippines has the third-lowest tariff rate alongside Indonesia. Singapore, which has a free trade agreement with the US, holds the lowest tariff rate, at 10%, while Laos and Myanmar have the highest, at 40%. Other Asian countries and their respective tariff rates include: Thailand and Cambodia (36%), China (30%), and Japan (15%).

JC Punongbayan of the University of the Philippines School of Economics told L!fe that the tariff meant American consumers paying 19% more for what the US imports from the Philippines. He corrected Trump’s inaccurate declaration on Truth Social that “The Philippines will pay a 19 percent tariff.”

According to him, economists fear that when the full brunt of the tariffs is felt, US inflation will skyrocket in the coming months, with the Americans experiencing its impact firsthand.

“But it will also spell trouble to the rest of the world, in the sense that all of these tariffs lead to lower growth forecasts globally,” he said. “When all of these tariffs are in place, the price of all imported goods will necessarily go up in the US.”

Ricafort noted that the present US tariff rates are “still subject to negotiations” by Aug. 1. They may also be part of the so-called “TACO” (Trump Always Chickens Out) tactic, in which Trump threatens higher tariffs, but only as a negotiating tactic before ultimately settling for a much lower tariff rate for fear of higher inflation and slower economic growth.

“The markets are still in a wait-and-see mode,” he said.

‘Limited drag’ on GDP

In any case, Ricafort said the new tariff rate has a “limited drag” on the country’s gross domestic product, since the Philippine economy doesn’t rely much on exports as a source of economic growth.

“Philippine merchandise exports are three to five times lower compared to major ASEAN countries on a yearly basis,” he said. “So there’s a more limited adverse impact on the Philippines by the US reciprocal tariffs.”

Punongbayan said Marcos and Trump’s deal also activates a so-called “Trump card”: bolstering our country’s geopolitical alliance with the US.

“The US values that partnership, for example, in the West Philippine Sea (issue),” he said. The area is being contested by China, which has relentlessly attacked Filipino fisherfolk there and amassed its resources despite it being within the Philippines’ exclusive economic zone.

Moreover, Ricafort noted that Marcos also met with US Secretary of State Marco Rubio, and the US vowed to provide $60 million (P3 billion) in foreign assistance to the Philippines to fund energy, maritime, and economic growth programs. The US State Department also intends to allocate $15 million (P825 million) to accelerate private sector development in the Luzon Economic Corridor.

As regards the “open market,” Punongbayan pointed out that the zero tariff on automobiles meant the US can sell those more easily to the Philippines. But he noted that cheaper cars aren’t truly something that would benefit a lot of Filipinos, as more cars aren’t needed “given the traffic situation in Metro Manila and urban areas.”

“We don't need to lean further into car-centric society and infrastructure,” he said. “Perhaps if other products have zero tariffs moving forward, it will benefit Filipinos in the sense that those who will import these products will have to pay lower prices.”

Otherwise, Punongbayan said the deal meant the Philippines would have a “much harder” time to “penetrate the US market [through] semiconductor, food, and agricultural products.”

Though the Philippines has major semiconductor players, Punongbayan said it would be harder for them to sell them to the US because of this new deal. Even if the US is their “biggest market,” he noted that since the Philippines also has semiconductors as its biggest import, what we export is “kind of in the middle in the global value chain.”

“Unfortunately, that points to the fact that the Philippine export sector is not diversified,” he said. “We're not able to make smartphones or laptops like Vietnam does, for example.”

Ricafort noted that Trump’s tariffs also create “uncertainties,” which may lead to a slowdown in export demand in the US, global investments, and overall economic growth.

For countries like the Philippines, Punongbayan warned that these tariffs will likely cause a ripple effect. He explained that the US Federal Reserve might raise its interest rates, which would then push banks around the world to do the same, just as they did in 2022 and 2023.

“That will make the cost of borrowing higher, and that will dampen growth,” he said.

No estimates yet on new tariff rate’s impact

As it stands, Punongbayan said there are no estimates yet on the new tariff rates’ impact on the GDP and the labor market. But he noted that in the case of semiconductor firms in the country, they’re bound to “feel the pain.”

“For firms located in many economic zones in our country, like in Luzon, their orders will start to go down. Their production and sales will be affected. Some of their employees will also have to be laid off,” he said. “We have yet to see whether or not the impact would be great.”

Ultimately, Punongbayan said the US tariff can be a political tool.

“Trump has this philosophy that tariffs are a bargaining chip for the US, and that he can weaponize it to 'punish' countries that, in his mind, take advantage of the US,” he said. “This is a very unfortunate turn of events.”

Ricafort, meanwhile, believes that based on TACO, Trump could send letters to 150 countries and settle for tariff rates ranging from 10% to 15%. But given that some countries like the Philippines have already been “cooperative” and have entered trade deals with the US, there may be less room for surprise changes.

‘Deepen trading relationships’

In the grand scheme of things, Punongbayan said the Philippines shouldn’t solely rely on its deal with the US to prosper. Instead, it should deepen its trading relationships with other countries.

“We seemed to have entered a new era of protectionism globally, led by no less than the US,” he said. “This is a far cry from the waves of globalization that we have seen, especially in the 20th century.”

The Philippines need not go far, as Punongbayan said it can focus on ASEAN neighbors, something it has been doing over the past decades.

“The US has a decreasing role in our exports and imports over time,” he said, adding that, at any rate, the Philippines must opt to explore the possibility of free trade agreements with the likes of Europe.

The Philippines must also learn to be attractive to investors by doing away with corruption, red tape, and uncertainty in policies, Punongbayan said, highlighting thee "need to fix" these issues "if we want to see a wave of investments coming our way."

For his part, Philippine Ambassador to Washington Jose Manuel Romualdez said trade discussions between the Philippines and the US will continue.

“The lowering of tariff to 19% is a good deal for the moment," Romualdez said, "but there is still more that we can do, and that there will still be more discussions ahead."