As Philippine President Marcos Jr. embarks on a crucial trip to Washington, uncertainties triggered by U.S. tariffs are unsettling global markets and the trade war with China is squeezing third countries, including many in ASEAN. Lowering tariffs, pursuing investment pledges, and boosting cooperation in sectors such as shipbuilding, semiconductors, and critical minerals are key to rebutting claims that the relation is more arms than butter.
Much is at stake in the upcoming visit of Philippine President Ferdinand Marcos Jr. to Washington, scheduled for July 20-22. He is the first ASEAN head of state to be hosted by President Donald Trump. His trip comes a week before his fourth State of the Nation Address, so he is expected to bring good news. Can he leverage the longstanding alliance to get a good deal for his country? Or does the United States see economics apart from geopolitics? While security dominates much of the bilateral ties, it is imperative to show that engagement is not just about arms, but also very much about butter.
Four points should be high on his priority list.
First is reducing tariffs on Philippine exports to the U.S. When Trump launched the “Liberation Day” tariffs in April, the Philippines received the second-lowest tariff, after Singapore’s baseline of 10%. Although upset, Manila found a silver lining in this initial tariff schedule, hoping it would attract more manufacturing capital to relocate to the country. However, such hopes soon evaporated as Vietnam and Indonesia eventually got big tariff discounts. Hanoi was able to lower its tariffs from a high of 46% to 20%, while Jakarta got it to 19% from the original 32%. And these two ASEAN neighbors were able to secure these new rates without Communist Party of Vietnam Secretary General To Lam or Indonesian President Prabowo Subianto visiting Washington.
To make matters worse, Manila’s initial 17% tariff was upgraded to 20%, prompting the country to scramble a team to negotiate with their U.S. peers. Developments over the last two weeks eroded what could have been a significant edge for the Philippines back in April. Needless to say, getting a lower tariff is imperative for the country to attract more capital.
The second is following up on U.S. investments. In 2022, U.S. company Cerberus thwarted a possible Chinese takeover of the strategic ex-Hanjin shipyard in Subic. The deal was billed as the biggest public-private partnership project in the 75-year history of Philippines-U.S. relations. However, since the acquisition by a financial entity with no shipbuilding track record, no substantial progress has been noted. At its peak, the former Korean-owned shipyard employed 35,000 workers and made the Philippines the world’s fourth-largest shipbuilding nation. Hanjin began building the shipyard in 2006. By 2008, it inaugurated the first Philippine-made container ship in a ceremony graced by former President Gloria Macapagal-Arroyo.
However, since the shipyard declared bankruptcy in 2019, only 300 laborers remain, and there appears to be no solid plan to revive the shipyard to its former glory. This is despite rhetoric to restore US shipbuilding capacity by working with allies such as Japan, South Korea, and Australia. The Philippines can contribute, and the Subic shipyard can serve as a showcase. Its failure to take off will not bode well in a region where China has been busy building massive, transformative infrastructure, including ports, railways, expressways, dams, power plants, and industrial parks.
Aside from the Subic shipyard, Marcos also needs to follow up Washington’s commitment to support his flagship Luzon Economic Corridor, an ambitious project to improve port and rail connectivity, agribusiness, and semiconductor production in a major bustling hub in the country’s largest island. Last March, the chief executive created the Semiconductor and Electronics Industry Advisory Council to further promote and strengthen the country’s top exports. Geopolitics is reshaping the investment and production trends in this valuable technology sector, and the country should not be left out.
Marcos should also raise investment pledges made during the 2022 visit of former Vice President Kamala Harris to Manila. The U.S. promised to invest in building a geothermal power plant in Mindanao and a nickel-cobalt processing facility. This can enhance the country’s energy security and elevate its position in the global critical mineral supply chain. While renewable energy and electric vehicles may not be among Trump’s priorities, critical minerals and semiconductors are.
Third is the need to balance demands to buy more U.S. agriculture with the protection of local farmers. The U.S. sells more agricultural goods to the Philippines than the other way around. The country is the biggest buyer of American pork and wheat in ASEAN. In contrast, Philippine bananas and pineapples face distance disadvantages relative to their Latin American rivals in the U.S. market, although there is an opportunity for coconuts. In fact, China, not the U.S., is the biggest market for Philippine tropical fruit exports. Agriculture is high on Marcos’ agenda, having initially served as concurrent Agriculture Secretary for 11 months before appointing a businessman to head the key Department. Boosting local farm production and reducing the prices of basic staples, such as rice, are among Marcos’ legacy programs. Reconciling this with increasing agricultural imports, including those from the U.S., is a challenge.
Fourth is the fate of illegal Filipino migrants in the U.S., given hasty efforts to deport them to third states. Overseas Filipinos are regarded as unsung heroes for their contribution to the national economy through remittances. Protecting them is one of the three key pillars of Philippine foreign policy. Filipinos are one of the biggest diaspora communities in the U.S., and advocate groups expressed concerns about the rights and welfare of Filipinos caught in the sweeping crackdown against illegal migrants. Marcos may request that Filipinos be given legal redress and, should they be expelled, be sent to the Philippines and not to a third country where they have no relatives or may face difficulty getting consular assistance.
Marcos is expected to leverage the alliance to give his country a better deal. In 2023, the Philippines expanded U.S. military access from five to nine agreed sites. Manila also hosted Typhon mid-range and NMESIS anti-ship missile systems. Much of the additional military sites and locations for missile deployment were in northern Luzon and Batanes, facing Taiwan, suggesting Manila’s alignment with U.S. strategy regarding the self-ruled island. These developments heighten concerns that Manila may become enmeshed in a Taiwan contingency and further strain the country’s ties with its big neighbor, Beijing, which is already tense due to rising tensions in the West Philippine Sea. The economic fallout of heightened disputes with the country’s largest trade partner is already felt in tourism, infrastructure projects, investment, and trade. Failure to offset such lost economic opportunities may raise questions about the country bearing elevated risks with no alternative rewards. Furthermore, demand for allies to increase their defense spending to 5% of their GDP will also be a tough conversation, given Manila’s pressing economic priorities and constitutional mandate.
The Philippines welcomes U.S. diplomatic support for its position in the South China Sea and material support for modernizing its military. But for a developing country that narrowly missed its Upper Middle Income Country (UMIC) target, the Philippines has a lot of economic homework to do. All the original five ASEAN founding members, with the exception of already high-income Singapore, have already achieved UMIC status. Vietnam’s GDP has already surpassed that of the Philippines.
The U.S. is an ally and a key economic partner. Hence, a meeting outcome that is heavy on arms and thin on butter will be regrettable. A view that Manila serves only as a logistics hub, while receiving a pittance, will not resonate well in a region being courted by rival powers.
