Without swift and strategic policy response and stronger institutional coordination, the Philippines may miss out on key opportunities from an evolving global trade landscape, the Philippine Institute for Development Studies (PIDS) said in a study.
The discussion paper, “Navigating a New Era of Reciprocal Tariffs: Strategic Implications for the Philippines and Selected ASEAN Economies,” emphasized that effectively aligning industrial policy with a proactive trade strategy is essential to mitigating the effects of tariffs and securing long-term competitive advantage.
Compared with its 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 report, authored by PIDS emeritus research fellow Rafaelita Aldaba and released on Tuesday night, said.
“However, this advantage is tempered by the country’s modest export base, which significantly constrains its ability to seize emerging trade-diversion opportunities,” it added.
‘Modest trade footprint’
The Philippines remains heavily dependent on a narrow set of export products and lacks the manufacturing necessary for
scale and resilience, the report said.
Thus, any changes in US procurement strategies or disruptions in global supply chains could swiftly erode the country’s already modest trade footprint, unless the country takes bold steps toward export diversification and value upgrading, it added.
The study assumed the US tariff on Philippine goods would be 17 percent, as announced prior to the 90-day pause.
Having the lowest US reciprocal tariff rate in the region, relatively high exemption coverage and a robust base in electronics and semiconductors, the Philippines is well-positioned to capture relocation and supply chain shifts, the study said, citing in particular, these areas: final assembly and testing of electronics; semiconductor packaging and integrated circuit backend services; production of converters, power supplies, and telecom devices; peripheral manufacturing; and select consumer goods, such as optical equipment and electrical accessories.
Need for strategic interventions
However, the report said several structural and institutional constraints continue to undermine the country’s ability to fully leverage its tariff advantage.
The paper cited logistics and infrastructure deficits, limited industrial depth, and workforce skilling gaps.
“To overcome these barriers and unlock its full export potential, the Philippines must urgently implement a coordinated set of strategic trade and industrial interventions to safeguard critical sectors while accelerating industrial upgrading,” the paper said.
“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,” it added.
Two complementary sets of measures are recommended to protect domestic industries, expand the country’s industrial base, diversify export markets, and strategically position the country as a competitive and reliable hub for trade and production: industrial upgrading, resilience building, and trade defense and monitoring mechanisms.
“Without swift and proactive policy implementation, the Philippines risks being merely a passive beneficiary rather than a strategic player in ongoing global trade realignments,” the report said.
“Persistent product concentration and unaddressed structural vulnerabilities could severely limit future economic resilience and constrain participation in high-value global industries,” the report said.
“Conversely, 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,” it added.
Moreover, the paper said deeper coordination with Asean neighbors can amplify regional bargaining power, harmonize rules of origin, and mitigate the risks of trade deflection and industrial crowding.
“Such deliberate urgency, coupled with integrated domestic reform and regional collaboration, is critical to seizing current opportunities before the competitive advantage window closes,” it said.
PH vulnerability
Using a Tariff Exposure Composite Index (TECI), a multidimensional tool quantifying the relative vulnerability of the country’s exports to the new tariff regime, the report revealed that the Philippines falls within the moderate risk tier, with a risk score of 2.2, where 1 indicates low vulnerability and 4 represents very high vulnerability.
Indonesia has a similar risk score to the Philippines, while Malaysia, Thailand, and Vietnam have higher vulnerability scores of 2.8, 3, and 3.4, respectively.
In her independent study, which was reported by Malaya Business Insight last week, Aldaba said the 17 percent reciprocal tariff the US is considering imposing on Philippine products will potentially cost American buyers an estimated $1.8 billion a year.
Aldaba used the baseline value of Philippine exports to the US at $14.98 billion in 2024, and determined that the $1.8 billion represents the tariff cost, or the 17 percent tariff on goods.
