Philippines has room to negotiate much lower tariffs with US — BMI

The Philippines has room to negotiate with the US to lower its reciprocal tariffs, Fitch Solutions’ unit BMI said, but added that trade tensions are still likely to weigh on economic growth.

“For now, though, Washington has lowered the tariff rate to 10% for 90 days. We think that the Philippines will be successful in keeping them at this level at the very least,” BMI Asia Country Risk Analyst Shi Cheng Low said in a webinar on Tuesday.

US President Donald J. Trump slapped a 17% tariff on the Philippines earlier this month, but suspended this for 90 days, keeping the blanket 10% duty in effect.

The Philippines’ 17% tariff rate is much lower than its Southeast Asian peers, some of which are facing some of the highest reciprocal tariffs. Six Southeast Asian countries were slapped with much larger-than-expected tariffs of between 32% and 49%.

BMI said the Philippines can negotiate with the US on further lowering trade barriers.

To address the US’ demand to increase import volumes, BMI said the Philippines can possibly increase energy and weapon imports, as well as lower levies on US goods.

“(The Philippines) remains an important security partner for the US, especially as Washington is working to counter Beijing’s expanding reach in the South China Sea,” Mr. Low said.

“Therefore, we think that this will give them at least a bit of leverage. If we are right, the final impact will be less severe, and we expect them to shave off about 0.6 percentage point (ppt) of headline growth.”

If the 17% reciprocal tariff is implemented, BMI’s baseline estimates show that this could subtract about 1.1 ppt from the Philippines’ real GDP growth.

“We revised our real GDP growth projections from 6.3% to 5.4%,” Mr. Low said.

BMI’s forecast would fall short of the government’s 6-8% target this year.

“Now, this is more aggressive than the 0.6 ppt we have previously mentioned but because it’s a reflection of a very tepid domestic activity we’ve seen recently. So, more stimulus will be needed to cushion the impact.”

“The Philippines’ exposure to both China and the US economy is pretty balanced. With both economies likely to slow over the next few quarters, the Philippines will definitely follow suit,” he added.

Meanwhile, BMI expects the Bangko Sentral ng Pilipinas to cut rates by an additional 75 basis points (bps).

The Monetary Board earlier this month resumed its easing cycle, cutting rates by 25 bps to bring the benchmark to 5.5%.

The next rate-setting meeting is on June 19. There are four more Monetary Board meetings slated this year, including June. — Luisa Maria Jacinta C. Jocson