Impact of Trump’s Tariff Policies on the Philippines

By Annette Pelkmans-Balaoing
Convenor: EMIT C4C

Donald Trump’s tariff escalation primarily targets countries with strong trade ties to the U.S., such as China, Mexico, and Canada. However, its indirect effects on the Philippines will be significant across several channels.

One possible effect is trade diversion. The Philippines may see short-term benefits as US buyers seek alternative suppliers for products affected by tariffs on Chinese goods, provided that Philippine goods escape the onslaught of US tariffs. But if tariffs trigger a broader slowdown in U.S. and global demand, Philippine exports, particularly electronics, garments, and processed food, could suffer. Trump’s protectionist stance could also encourage more Buy American policies, making it harder for Philippine exports to compete in U.S. markets.

The impact on the Philippine BPO Industry, will be less direct but still significant. As a key driver of economic growth, the sector depends heavily on U.S. clients.  If American companies face higher costs due to tariffs, they might scale back spending, potentially reducing demand for Philippine call centers and IT services. However, services trade is less vulnerable than goods trade, as outsourcing remains a cost-saving measure for U.S. firms. While onshoring policies could encourage US firms to bring jobs back home, the impact on BPO employment may be less severe than the disruptions in goods exports.

The third impact is caused by foreign investment uncertainty in Southeast Asia.  A global economic slowdown could cause multinational companies to delay expansion plans, limiting job creation and technology transfer in the Philippines. Investors tend to avoid volatile environments, and sustained trade disputes could undermine confidence in emerging markets like the Philippines.

Another consequence is the pressure on prices and consumers. Contrary to Trump’s claims, tariffs are not paid by foreign firms but by U.S. importers, who pass the costs on to producers and consumers. Higher tariffs could raise prices in the U.S., reducing purchasing power and slowing demand for Philippine exports. The Philippines also relies on remittances from overseas Filipino workers (OFWs) in the U.S., which could decline if job losses increase. Additionally, trade uncertainty and a weakened dollar could push up the cost of imported goods such as fuel, food, and electronics, contributing to inflation.

Geopolitically, the Philippines may also feel the effects of shifting global alliances. As China seeks to counterbalance U.S. tariffs, it may deepen trade ties with ASEAN nations, including the Philippines, through trade agreements and infrastructure projects. While this presents economic opportunities, aligning too closely with China could create diplomatic challenges, forcing the Philippines to carefully manage its relationships with both major powers.

If the Philippines and other countries retaliate with countermeasures such as tariffs on U.S. goods or restrictions on market access, it could escalate into a full-scale trade war. This could disrupt global supply chains, especially in sectors like electronics and intermediate goods, where Philippine exports are deeply embedded in multinational production networks. A prolonged trade war would deter foreign investment, weaken global demand, and put pressure on Philippine households and businesses through higher prices. Trade disputes also have a way of spilling over into diplomatic relations, meaning the Philippines must tread carefully to protect its long-term interests.

The last time the world saw a full-scale trade war, during the 1930s, it plunged the global economy into recession. The Smoot-Hawley Tariff Act of 1930 led to retaliatory measures that collapsed global trade and deepened the Great Depression. The economic devastation fueled nationalism, protectionism, and extremism, paving the way for World War II as nations turned inward and blamed foreign actors for their misfortunes. The lessons from history are clear: aggressive protectionism rarely ends well.

The Philippines will do well to resist the temptation to retaliate. The country has long benefited from open markets and economic peace, and engaging in a trade war would only harm its own economic prospects. However, this moment presents a crucial opportunity to strengthen local industries, as rising import costs will make domestic production more competitive.

At the same time, industrial policy is no longer taboo. There is now greater policy space to explore how local firms can take center stage, after years of prioritizing foreign investment and export-driven growth. By leveraging this shift, the Philippines can pursue a balanced approach—remaining committed to free trade while actively supporting domestic industries to build resilience in an increasingly uncertain global economy.