While electronics are well protected, companies that produce apparel, footwear, toys, and those with smaller operations have to follow a more costly route if they want to enter the American market.
The new U.S. tariff applied to Philippine exports is not a universal catastrophe for the country’s economy; it is instead more focused and could be more damaging for the workers and businesses that are affected by it.
Starting on July 24, the United States imposed an extra tariff of 12.5 percent on certain Philippine products after carrying out an inquiry into whether its trading partners were effectively preventing the import of goods linked to forced labour. A preliminary assessment by the Department of Trade and Industry indicated that the tariff would apply to about $6.25 billion, or roughly ₱400 billion, in Philippine exports. This amount corresponds to around 34.28 per cent of the country’s total shipments to the United States.
That distinction is important; although the tariff does not apply to all Philippine products entering America, the industries to which it applies include some of the country’s most labor-intensive employers.
Electronics Escape the Worst of the Tariff
The most reassuring aspect of the government’s assessment is that over 60 per cent of the Philippines’ exports to the United States, amounting to about $11.98 billion, are expected to continue to be exempt.
The Philippine Star, citing the DTI assessment, states that the exempt products are semiconductors, integrated circuits, automatic data-processing machines, printers, headphones and projectors, while automotive and aircraft parts are also protected, together with a number of agricultural and mineral exports.
The fact that this protection is important stems from the fact that electronics are still one of the Philippines’ most significant export sectors. According to the government’s most recent economic estimates, electronics exports and manufacturing are cited as potential sources of strength for this tough year.
It would be wrong, then, to grant exemptions for major electronic products as a reason for ignoring the tariff’s broader consequences.
The items subject to the extra duty are leather and travel goods, clothing, footwear and toys. Although these industries do not account for the largest share of the country’s exports, they employ workers whose livelihoods depend on steady overseas orders.
The Tariff Is Paid in America, but the Pressure Travels Back
The tariff is taken from American importers at the time that the items in question enter the United States; this does not imply that Philippine exporters are exempt from the financial obligation.
An American buyer who is meeting a higher landed cost can ask its Philippine supplier for a lower price, reduce the size of its order or transfer production to a different country. A major exporter might take some of that pressure on itself, but a smaller manufacturer with narrow margins would not have that choice.
Fred T. Escalona Jr., executive director of Philexport Cebu, cautions that the measure might damage the Philippines’ competitiveness since exporters are already facing high production and logistics costs.
As Escalona pointed out:
“The proposed tariff could reduce the competitiveness of Philippine products in the U.S. market.”
He said that legitimate companies should not end up as “unintended casualties” of a policy which is directed at forced labour elsewhere in the global supply chains.
This is especially serious in Cebu, since the furniture, fashion accessories, processed food and other export businesses there place great reliance on buyers from abroad. The Mandaue Chamber of Commerce and Industry has warned that reduced competitiveness might have an effect on micro, small and medium enterprises as well as on jobs across their supply chains.
The Peso Is Already Facing a Difficult Environment
It is unlikely that a single tariff affecting about one-third of Philippine exports to the United States will on its own decide the direction of the peso, the currency being influenced by a number of factors such as oil prices, interest rates, imports, remittances and investor confidence.
Even so, lower export earnings can decrease the amount of U.S. dollars that enter the Philippines. Should covered exporters lose their orders or get smaller payments, this would provide another source of pressure on an economy which is already experiencing difficult external conditions.
The Development Budget Coordination Committee has recently reduced its predicted growth rate for 2026 to a range of 3.5 to 4.5 percent and has projected inflation at 6 to 7 percent, assuming an exchange rate of about 60 to 62 Philippine pesos per United States dollar.
The government anticipates that goods exports will increase by just 3 per cent in 2026, and achieving that aim would become more difficult if even part of the American market lost momentum.
The tariff thus reaches the wrong time.
Negotiations Are Necessary, but Compliance Must Be Visible
The Philippine government has stated that it will keep on negotiating with Washington and aim at having the tariff rate reduced to the lower 10 per cent category.
Claire Castro, a press officer at the palace, stated that Manila had underlined its firm policy regarding forced labour and that it would keep looking at the tariff exemptions and the impact they have on exports. Furthermore, Trade Secretary Cristina Roque maintained that Philippine exports of electronics, semiconductors and agricultural products contribute to the stability of American supply chains.
The government has set up an interagency mechanism which involves the DTI, the Department of Labor and Employment and the Department of Finance in order to investigate imports that are suspected of having been produced by means of forced labor.
Roque stated that the Philippines should promote responsible business conduct since both companies and consumers are calling for more ethical and transparent supply chains.
That is the right direction, but the passing of the rules will not be sufficient. It is necessary for customs enforcement, the documentation of the supply chain and communication with the exporters to demonstrate that the system works.
The most disastrous result was avoided since the Philippines’ major exports in electronics are still protected; the tariff has already been imposed, though, on manufacturers of apparel, footwear, toy makers and smaller exporters from the provinces.
It’s important to negotiate a reduced rate and it’s even more important to protect the workers who are behind each shipment affected by the change.