THE Philippines faces a significant challenge in its bid to become a new hub for manufacturers leaving China, as it is poised for “intense competition” from Vietnam, an economist said.
Ronilo Balbieran said that recent changes in tariffs for goods exported to the United States (US) have put the Philippines on equal footing with Vietnam, erasing a previous advantage and increasing the pressure on the government to act.
“Since the reciprocal tariff has actually risen from 17 to 20 percent, while Vietnam went down from 46 percent to 20 percent, this poses a challenge to our opportunity to attract manufacturers located in China to relocate to the Philippines and export to the US from our country," Balbieran said.
"We will be met with intense competition from Vietnam for luring these manufacturers and investors to relocate, despite our 20 percent being one of the lowest. There will be greater pressure from our government to intensify our investment promotion and facilitation, as well as to further streamline and digitalize government services and support for ease of doing business,” he added. "What I am curious to find out is why and how we actually increase from 17 to 20 after the negotiation."
Meanwhile, the Department of Trade and Industry (DTI) said it remains committed to pursuing a “balanced and mutually beneficial” trade relationship with the US, following Washington’s decision to impose a 20 percent reciprocal tariff on all Philippine exports starting August 1, 2025.
In a statement released Wednesday, July 10, the DTI expressed concern over the decision, despite what it described as “constant engagements” with US officials.
The 20 percent tariff rate is the second lowest among those imposed on countries in the region but still poses a significant challenge to Philippine exporters.
“We are concerned that, notwithstanding our efforts and constant engagements, the US still decided to impose a 20 percent tariff on Philippine exports,” the DTI said.
US authorities formally notified President Ferdinand Marcos Jr. of the tariff through a direct letter, stressing the need for "more balanced, and fair, trade."
The letter, signed by US authorities, highlighted that the Philippines’ tariff and non-tariff barriers have contributed to long-term trade deficits, prompting the US to impose a 20 percent duty on all goods originating from the country.
Transshipped goods will also be penalized if used to evade the tariff. However, it adds that companies relocating production to the US could avoid the tariff entirely.
“Please understand that the 20 percent number is far less than what is needed to eliminate the trade deficit disparity we have with your country,” the letter stated, adding that any retaliatory action from the Philippines could prompt additional levies.
“We recognize the concerns of the United States regarding trade imbalances and its desire to strengthen domestic manufacturing. However, global supply chains are deeply interconnected, and unilateral trade impositions will have adverse effects to the global economy,” the DTI added.
A Philippine economic delegation, led by Special Assistant to the President for Investment and Economic Affairs Frederick Go, is scheduled to travel to Washington next week to negotiate better terms. Go confirmed the trip during the Cebu Business Month 2025 Business Investment Forum on Wednesday, July 9.
“The Philippines remains steadfast in advancing key economic reforms to sustain a competitive and investor-friendly business environment, while broadening its trade partnerships,” the DTI said.
According to economist Efren Valiente, the tariff increase will impact trade flows in both directions.
“An increase in tariff will increase the price of goods imported from the US,” Valiente explained, who is also past president of Cebu Chamber of Commerce and Industry (CCCI). “And Philippine products exported to the US will be less competitive compared to other exported products with tariffs lower than 20 percent.”
Industry leaders said the tariff hike will erode the country’s competitiveness and could weaken investor confidence.
“The new tariff rates on Philippine goods from 17 percent to 20 percent would truly impact the country’s GDP. This will directly hit local manufacturers and exporters, resulting in higher unemployment and underemployment,” said Mark Ynoc, president of the Mandaue Chamber of Commerce and Industry (MCCI).
“We shall also see the weakening of investor confidence as well as the Philippine currency. We hope our government leaders will negotiate the tariff rates to strengthen bilateral trade ties with the US,” he added.
Fred Escalona, executive director of the Philippine Exporters Confederation (Philexport)-Cebu, said the move has dismayed local exporters, especially given that Vietnam — initially slapped with a 46 percent tariff — was also brought down to 20 percent.
“Vietnam's tariff initially was at 46 percent and ours was 17 percent. Thus our competitive advantage is gone as we are both levied at 20 percent,” Escalona said. “But, there’s still time to negotiate before the Aug. 1 effectivity.”
Trump announced the lower-than-promised 20 percent tariff on many Vietnamese exports last week after two months of negotiations.
Escalona added that the Philippines’ own tariffs on US goods, which are currently at 34 percent, would likely need to come down to achieve reciprocity.
“Reciprocity is what (Donald) Trump expects,” he said, referring to the likely influence of US trade policy hawks behind the move.
Valiente echoed Escalona’s sentiment, adding that the Philippines should determine the volume of products it exports to the US that compete with other countries, along with the corresponding new US tariffs imposed on those countries, so it can adjust its strategy accordingly.
Meanwhile, Steven Yu, former president of the MCCI, remained optimistic that negotiations could yield a better outcome.
“Based on the tenor of the letter, the US is always open for negotiations, and I believe that our Philippine team is doing their best to get a fair and mutually beneficial deal between the parties,” Yu said.
He added that the Philippine economy is somewhat insulated from the full impact due to its reliance on overseas remittances, tourism and the business process management industry rather than merchandise exports.
“Some exporters seem willing to absorb the increase but are hoping that the government will support them by lessening input costs and improving ease of doing business,” Yu added.
CCCI president Jay Yuvallos echoed similar sentiments, saying that it is still “too early” to comment definitively on the 20 percent rate given ongoing negotiations.
“The chamber believes and hopes that the best tariff rate will be reached upon conclusion of this negotiation phase,” Yuvallos said.
Profood International Corp. chief executive officer Justin Uy said that as long as peer countries are subject to the same or higher tariffs, the Philippines could remain competitive—but should push for a lower rate.
“As long as our other Asian competitors are not lower than us, it should be okay. But we should preferably be at 10 percent,” Uy said. Profood is the largest Philippine-based dried fruit producer. It exports to more than 50 countries in Asia, the Middle East, Europe, North, Central and South America, the Caribbean and Oceania. (KOC)