Reciprocal tariffs: The US and the Philippines

First of two parts

This article focuses on Executive Order (EO) 14257, from the Office of the President of the United States (POTUS), and how it relates to the Philippines, as a trading partner of the United States (US). It is expected that by doing a reading of EO 14257, a better understanding of the reciprocal tariffs can be achieved, thus providing for more remedies to, and/or opportunities from, EO 14257.

On April 2, 2025, US President Donald Trump signed EO 14257, titled “Regulating Imports with a Reciprocal Tariff to Rectify Trade Practices that Contribute to Large and Persistent Annual United States Goods Trade Deficits.”

For the Philippines, the first ad valorem duty was 10 percent. The additional country-specific ad valorem duty would have increased the rate to 17 percent.

Per EO signed on April 9, 2025, President Trump suspended the implementation of the country-specific ad valorem rates of duty for most countries, including the Philippines, for a period of ninety days. The already imposed ad valorem duty of 10 percent and the paused additional country-specific ad valorem duty of 17 percent would be the reciprocal tariff.

So, what is a reciprocal tariff? The Office of the US Trade Representative (USTR) refers to a reciprocal tariff as the tariff rate necessary to balance bilateral trade deficits between the US and each of its trading partners, assuming that persistent trade deficits are due to a combination of tariff and non-tariff factors that prevent trade from balancing.

So, what is a trade deficit, and does the US actually have a trade deficit with the Philippines?

A news release published on Feb. 5, 2025 by the US Census Bureau of the US Department of Commerce states that the Philippines has a “trade deficit” with the US as of 2024, in the amount of approximately $4.88 billion.

In terms of percentage, this trade deficit constitutes 0.4 percent of the total trade deficit of the US, at $1.2 trillion. Specifically, for 2024, the Philippines exported to the US a total value of $14.178 billion worth of goods, while importing (from the US) a total value of $9.297 billion worth of goods, resulting in the trade deficit. The USTR Trade Summary on the Philippines also makes it a point to mention that this trade deficit in 2024 is a 21.8 percent increase ($873.3 million) over 2023.

The trade deficit is attributed to a number of issues, as mentioned in the 2024 National Trade Estimate (NTE) Report on Foreign Trade Barriers (and the 2025 NTE Report on Foreign Trade Barriers of the President of the United States on the Trade Agreements Program.

Both cited the following conditions in the Philippines: (a) US agricultural exports are significantly inhibited by the high in-quota tariffs for agricultural products under the Philippines’ tariff-rate quota program, known as the Minimum Access Volume system; (b) continuous application of high tariffs on finished automobiles and motorcycles (although mistakenly citing the tariff rate of vehicles at thirty percent (30 percent). Other concerns mentioned in the NTE reports include technical barriers to trade such as vehicle standards (e.g., lack of the Philippines’ commitment to a US Federal Motor Vehicle Safety Standards, sanitary and phytosanitary barriers, meat labeling requirements, cold chain regulations, intellectual property protection, investment barriers (limitations on foreign ownership) and even export subsidies.

So as far as the US Government is concerned, the US does have an existing trade deficit with the Philippines. The value of US imports from the Philippines is greater than the value of Philippine imports from the US. This imbalance is the result of the trade barriers imposed by the Philippines, per the NTE reports mentioned. Hence, the already imposed ad valorem duty of 10 percent and the paused additional country-specific ad valorem duty of 17 percent, to be imposed after 90 days.

But how was the additional country-specific ad valorem duty computed? The USTR states that “while individually computing the trade deficit effects of tens of thousands of tariff, regulatory, tax and other policies in each country is complex, if not impossible, their combined effects can be proxied by computing the tariff level consistent with driving bilateral trade deficits to zero. If trade deficits are persistent because of tariff and non-tariff policies and fundamentals, then the tariff rate consistent with offsetting these policies and fundamentals is reciprocal and fair.”

On the other hand, the Center for Strategic and International Studies postulates that the computation of the reciprocal tariff was the result of the value of the US trade deficit with the Philippines ($4.88 billion) divided by the value of US imports from the Philippines ($14.178 billion) = 0.344, divided by two percent = 17.209 percent, rounded off to 17 percent. This is the “Reciprocal Tariff, Adjusted,” as mentioned in Annex I of EO 14257.

Andrew James Gerard D. Ruiz is the Tax and Customs Director of R.G. Manabat & Co. (KPMG in the Philippines), a Philippine partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. He has over 30 years of tax (internal revenue and local) and trade and customs practice. The firm has been recognized as a Tier 1 in Transfer Pricing Practice and in General Corporate Tax Practice by the International Tax Review. For more information, you may reach out to Tax Director Andrew James Gerard D. Ruiz or Tax Partner Ryan E. Cabello through [email protected], social media or visit www.home.kpmg/ph.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity. The views and opinions expressed herein are those of the author and do not necessarily represent KPMG International or KPMG in the Philippines.