Wallflower

If the Southeast Asian economic scene was something like your high school junior-senior prom, the Philippines will be the consistent wallflower. The most popular dance music would be played, getting everyone into the dance floor, except the Philippines. That’s because it is unprepared to dance.

So many economic opportunities have come and gone that could have truly elevated the Philippines into tiger economy status but we always miss the boat. There were several waves of investors wanting to diversify out of China but few entertained the idea of coming to the Philippines.

The last big wave of investors ended up making Vietnam their new favorite haven, including manufacturers from the United States.

It is perplexing that American investors would rather put their money in a communist country that was engaged in a long-drawn-out bitter war with them not too long ago. And here we are, a former American colony whose culture is so Americanized that it might as well have been the 51st state. Yet, Intel, a major American company, left the Philippines for Vietnam 16 years ago. A decade and a half after, we still haven’t figured out why they left.

So, here we are again with another opportunity to be the belle of the ball because the Trump tariffs imposed on our regional rivals were significantly higher than ours.

It might have been easy to dance away with the US market shares of our neighboring countries. But we are dumbfounded and unprepared as usual.

Dr. Rafaelita Aldaba, an emeritus research fellow at the Philippine Institute for Development Studies, has written a reaction paper on the implications of the Trump tariff for the Philippines. It is a pretty extensive paper that our policy makers in government as well as corporate decision makers should read to guide our next steps.

Dr. Aldaba confirmed that compared to our regional peers, “the Philippines benefits from a relatively lower reciprocal tariff rate, offering a strategic opening to enhance its export competitiveness, attract reconfigured global supply chains and amplify its strengths in digital and service-driven industries…

“The US tariffs of 125 percent on Chinese goods create strong incentives for multinational firms to relocate production to lower-risk jurisdictions,” Dr. Aldaba pointed out.

But capitalizing on this window provided by the Trump tariffs is far from automatic, Dr. Aldaba warned.

“The Philippines’ ability to convert this relative advantage into tangible economic gains will hinge on how swiftly it can mobilize responses in logistics, investment facilitation and targeted export promotion… this advantage is tempered by the country’s modest export base, which significantly constrains its ability to seize emerging trade-diversion opportunities.”

She explained that “the Philippines remains heavily dependent on a narrow set of export products and lacks the manufacturing necessary for scale and resilience. As a result, any shifts in US procurement strategies or global supply chain disruptions could swiftly erode its already modest trade footprint…”

Dr. Aldaba pointed out that several structural and institutional constraints continue to undermine the country’s ability to fully leverage its tariff advantage:

Logistics and Infrastructure Deficits:

Persistently high transportation costs, port inefficiencies and unreliable utilities burden exporters and discourage new investment.

Limited Industrial Depth: The country possesses fewer backward linkages and supporting industries relative to competitors such as Vietnam and Thailand, constraining integrated manufacturing and advanced export capabilities.

Workforce Skilling Gaps: While competitive in basic IT services, significant gaps persist in high-value skills such as artificial intelligence (AI), advanced manufacturing and research and development.

Dr. Aldaba also makes a very important point that our leaders must consider:

“In this new era of global tariff shifts and geoeconomic fragmentation, trade policy is no longer about maximizing market access – it is about securing industrial competitiveness.”

Perhaps, our trade secretary and BBM’s special adviser on the economy should not put all their hopes on flying to Washington to negotiate a new trade agreement with the US. Even if successful, that may have limited practical benefits unless issues surrounding our lack of industrial competitiveness are addressed.

Our limited product diversification and small volume limits our ability to maximize any advantages the Trump tariff may give. Philippine exports are largely concentrated in electronics such as semiconductor media, storage devices and ICT parts alongside coconut oil.

We can perhaps take the path of targeted upgrading, building on our current manufacturing strengths.

But it also gets complicated.

Danilo Lachica, president of the semiconductor and electronics industry association said the Philippines will have to tread carefully as the electronic sector imports 30 percent of its raw materials from China.

China has now made it difficult to import the rare earth and rare metals.

Apparently, that affects not just the US because according to Lachica, one of their local members cannot get their usual supply of magnets.

It seems, geopolitical considerations arising from our defense alliance with the US and the sour relations with China may matter for our electronic products exporters.

Nevertheless, Dr. Aldaba concludes that “without swift and proactive policy implementation, the Philippines risks being merely a passive beneficiary rather than a strategic player in ongoing global trade realignments… by adopting targeted policy and institutional measures – grounded in digital readiness, sectoral upgrading and strategic positioning – the Philippines can establish itself as a credible alternative hub for digitally-enhanced, service-integrated and geopolitically trusted exports.”

Of course, we have forever been talking of the reforms Dr. Aldaba is now saying we need to benefit from the tariff war. It’s incredible that our officials haven’t done much after we missed the last round of manufacturing migration out of China when the first Trump term imposed higher tariffs on China. Now, it seems we will miss it again.

We know what should be done. We have experts like Dr. Aldaba who have studied the situation deeply. We just need to do something unless we enjoy being the perennial wallflower at the ASEAN ball.

Boo Chanco’s email address is [email protected]. Follow him on X @boochanco