A trade deal that changes little
Two weeks ago, United States President Donald Trump struck a trade deal with the Philippines. Under this agreement, the US slightly reduced the reciprocal tariff rate on Philippine imports from 20 percent to 19 percent. In exchange, the Philippines agreed to remove tariffs on US automobile, wheat, soy and pharmaceutical imports.
At first glance, the one-percentage-point cut in tariffs on our exports to the US seems underwhelming—and rightly so. The US also extended the same 19-percent tariff rate to our Asean neighbors Thailand, Indonesia, Malaysia and Cambodia. Vietnam, while subject to a higher 20-percent rate, enjoys advantages that make it a more competitive exporter overall, including better infrastructure and deeper supply chain integration.
As such, the one-percentage-point gap is unlikely to make a meaningful difference. Meanwhile, Laos and Myanmar face a steeper 40-percent tariff, but they aren’t major players in the export market, accounting for only a small share of US imports from the region.
What’s more disappointing is that we’ve actually lost some of our earlier cost advantage. When reciprocal tariffs were first announced back in April, the Philippines enjoyed a more favorable 17-percent tariff rate—lower than most of our Asean peers by seven percentage points or more. That sizable gap improved our attractiveness as an investment destination, especially for manufacturers looking to benefit from lower export costs to the US.
Still, despite the outcry over the Philippines’ decision to remove tariffs on selected American products in exchange for a relatively modest gain, we didn’t give up much.
Removing tariffs on automobiles, wheat, soy and pharmaceuticals won’t have a major negative impact on local industries—mainly because we don’t produce these goods at scale to begin with.
In fact, the Philippines already sources the bulk of its wheat and soybean imports from the US, and both commodities are already subject to zero-percent Most Favored Nation tariffs. This means the new deal doesn’t really change anything in terms of pricing or trade flows for these products.
As for automobiles, most of the cars sold in the Philippines are already imported tariff-free under the Asean Trade in Goods Agreement. Vehicles manufactured in Asean countries like Thailand with at least 40-percent Asean content automatically qualify for zero tariffs when sold within the region.
Even American-branded cars are often produced in Asean and not in the US, making them eligible for duty-free entry. The few luxury models that are imported directly from the US—typically priced over P3 million—represent less than one percent of total car sales and are unlikely to see a big bump in demand due to the tariff change.
The biggest impact of the deal will likely be on pharmaceuticals. US medicines account for about 10 percent of our total pharmaceutical imports and are currently subject to tariffs. Removing these duties could lead to foregone revenues for the government. However, the potential reduction in medicine prices would greatly benefit Filipino consumers—especially those who rely on imported drugs.
And while the government estimates that it may forgo P6 billion in revenues from the removal of tariffs on US imports, the amount is not a lot, as it represents less than one percent of the P931 billion collected by the Bureau of Customs last year.
In summary, the trade deal won’t meaningfully boost our export competitiveness, especially now that we’ve lost our tariff edge over our Asean neighbors. But on the domestic front, it won’t hurt us either.
The Philippine government gave up little in exchange, and the public may even benefit from more affordable medicine. The real challenge moving forward is not just securing better trade terms—but improving our infrastructure, supply chain depth and policy environment. These are necessary for us to compete more effectively with our neighbors and to boost our export volumes more sustainably.
