Philippines seen more vulnerable to capital outflows amid US-China trade war

MANILA, Philippines — The escalating trade war between the US and China would affect capital inflows into the country more than actual trade volume, an economist of the World Bank said yesterday.

Trade tensions have been contributing to the prevailing uncertainty in the global economy, and is among the risks cited for the downgrade in growth forecasts for several countries in developing countries in East Asia and Pacific this year.

World Bank senior economist for the Philippines Rong Qian said while the Philippines does have exposure to the global value chain leading to China and the US, the effect on Philippine exports would be limited.

The effect of the trade war would be more pronounced on capital outflows from emerging economies like the Philippines as they de-risk their investments.

“The Philippines is part of the China value chain that exports to the US. And as the US imposes more tariffs to China, Chinese exports to the US might decline and that will have an impact on Philippine exports to China. That effect is so far limited,” she said.

“But the bigger effect is the financial channel. Because of the trade tension, global uncertainty has increased and investors tend to pull put resources from emerging economies, and the Philippines is so far one of them. So it encourages more capital outflow and weakens the peso,” she added.

Birgit Hansl, World Bank lead economist for the Philippines, said while capital flight is a real risk for the Philippines, the country is resilient to such because of its strong fundamentals.

“The Philippines is fairly resilient against capital outflows compared to many of its neighbors in the East Asia region,” she said.

“It has large foreign reserves, flexible exchange rate, low public debt, and robust remittance inflows. At this juncture, preserving the country’s resilience rests in large part on preventing the current account deficit from widening too much and too fast,” she added.

US President Trump announced last month the imposition of more tariffs on $200 billion worth of imports from China in two phases: 10 percent beginning Sept. 24 before rising to 25 percent on Jan. 1, 2019.

The new duties come on top of the 25 percent tariff on $50 billion worth of Chinese imports. If China retaliates, the US threatens to impose tariffs on $267 billion worth of Chinese imports.