February 5, 2025 l Business Mirror
AFTER his inauguration, President Donald Trump has been living up to his promises. And this time, the tariffs had indeed been raised as he promised. Last Saturday, the United States of America imposed tariffs of 25 percent on Canadian and Mexican goods, except for energy products imported from Canada levied at 10 percent. On China products, he imposed an increase of 10-percent tax.
It also halts a trade exemption on the above three countries known as “de minimis,” which allows exporters to ship goods worth less than $800 to the US duty free. This is where for instance, online shopping applications like Temu and Shein will be affected. The suspension of “de minimis” was due to the fact that their lower prices affected competitors and since these shipments undergo minimal documentation and inspection, this could affect product safety proper screening (https://www.cnbc.com, February 2, 2025). This will also force the public to buy local.
These tariffs can be used as a probable boost to the US economy or can be used as leverage for negotiations.
Trump, however, further framed these tariffs as leverage on drugs saying these countries are not exerting enough effort to stop the flow of fentanyl into the US. As to immigration, he blames Mexico and Canada (to a lesser extent) for an inflow of immigrants across US borders. And at this early, Mexican and Canadian leaders agreed to more cooperation on border control.
Last Monday, President Trump and the leaders of Mexico and Canada announced deals to prevent a potential trade war for 30 days as both US neighbors agreed to boost efforts to strengthen border security and combat drug trafficking. Mexican President Claudia Sheinbaum committed to deploy 10,000 national guard members to the US-Mexico border (https://www.apnews.com).
And when it comes to leveraging, it looks like President Trump could declare victory on this aspect.
These tariffs increases could be a boost or bane to the Philippine economy. But I hope it will have a more positive effect to our economy than a negative one. According to HSBC Global Research Asean Economist Aris Dacanay (https://www.PNA.gov.ph) the Philippines is “very insulated from the risks of higher US tariff rates.”
For one, the US trade deficit and surplus with the Philippines are so small. The reason Washington targeted China, Mexico and Canada first is because the US trade deficits in these countries are one of those that are huge. The trade deficit in the US widened to $78.2 billion in November 2024 alone up from $73.6 billion in October 2024. In 2023, the US trade deficit with Canada was $67.9 billion while in the fourth quarter of 2024, the US trade deficit with Canada was $14.7 billion. For Mexico, it was $152.4 billion in 2023 and $41.8 billion in the 4th quarter and with China in 2023 was $279.4 billion with $70.3 billion in the 3rd quarter of 2024. (US Bureau of Economic Analysis)
Trade deficits in simpler terms mean you import more from these countries than export. There is no balance of trade. The Philippines exports more services than goods, and tariffs are imposed on goods than services. And we should be working more on the services area especially on the area of artificial intelligence where the potential market is high so we can maximize on that.
In the Philippines, we can still enjoy shopping for cheaper buys in online applications but the peso and other Asian currencies are expected to depreciate this year according to Dacanay due to these tariffs. This means there is a possibility that the peso will likely be more than the P59-to-a-dollar level in the second quarter of 2025. So we are not completely insulated from these tariffs increases because one way or another they can also affect our monetary policy in terms of interest rates and currency exchange.
A trade war could be looming ahead and while the Philippines might be somewhat insulated, in a global economy like what we have today where the “sneeze of one country” can infect even a small country like ours, I hope it will not be like the economy during the pandemic times. This time the carrier is not Covid but tariffs.
***The views expressed herein do not necessarily reflect the opinion of BusinessMirror, her office, or FINEX. For comments, email wimiranda@inventormiranda.com. Photo is from Pinterest.