Reciprocal tariffs: The US and the Philippines

Part 2

The second portion of this article takes into account related developments as of April 20, 2025.

Note that per Section 2 of EO 14266, signed on April 9, 2025, US President Donald 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, or until July 9, 2025, at 12:01 a.m. EDT.

So, does data from the Philippines confirm the existence of a trade deficit that the US incurs relative to its trade with the Philippines? According to data from the Department of Trade and Industry (DTI), the Philippines exported a total value of $12.12 billion in exports, while importing a total value of $8.165 billion, for the calendar year 2024. Using the formula of the USTR, this would result in a trade deficit of $3.96 billion.

Moving forward, given this trade deficit, are all goods exported from the Philippines to the US subject to the reciprocal tariff?

It actually does not look that way.

Section 3(b) of EO 14257 states that goods mentioned in Annex II shall not be subject to the ad valorem rates of duty in the same EO. These include all automobiles and automotive parts subject to the additional duties imposed pursuant to several laws, copper, pharmaceuticals, semiconductors, lumber articles, certain critical minerals and energy and energy products. Annex II refers to specific goods classified under Chapters 05, 25, 26, 27, 28, 29, 30, 31, 32, 34, 36, 38, 39, 40, 44, 48, 49, 71, 72, 74, 75, 79, 80, 81 and 85.

Note that here is a conflict between the wording of Section 3(b) of EO 14257 and the wording in Annex II of the same EO. Even with POTUS signing a Memorandum dated April 11, 2025 (adding several headings and subheadings under Chapter 84 to the exemption list), the conflict has not been fully addressed. Hence, it is still unclear how the enforcement of Section 3(b) of EO 14257 will proceed.

Nonetheless, assuming that the details as presented in EO 14257 are accurate as of this writing, several questions should be addressed.

First, assuming the trade policy of the Philippines would be to acknowledge the trade deficit and work toward correcting it, how would this be done? With the mention of high Philippine tariffs on US agricultural products and automobiles and motorcycles in the NTE reports, could the Philippine tariff rates on these items be adjusted, in general for all exporters or country-specific exporters?

The President of the Philippines is actually empowered to, among others, increase, reduce, or remove existing rates of import duty, under Chapter 2, Title XVI of the Customs Modernization and Tariff Act (CMTA) of 2016. Would the Philippines likewise be willing to commit to the removal of other non-trade barriers to address the concerns in the NTE reports?

Second, does the Philippines export to the US any of the goods specifically mentioned in Section 3(b) and Annex II of EO 14257? It would be worthwhile to make this determination, and research further as to why these items are exempt, if actually exempt. For example, the supposed total value of $5.651 billion exported to the US from the Philippines in 2024 referred to advanced technology products. Some of these goods would actually be under Chapter 85 of the HTSUS, with specific goods under Chapter 85 mentioned in Annex II of EO 14257. What entities in the Philippines actually produce these items that are exported to the US? Is there a way to leverage on the exemption?

Third, is the Philippine government willing to grant or provide additional support to the affected Philippine exporters, notwithstanding the mention of subsidies (as trade barriers) in the NTE Reports?

Fourth, what are the options available to affected Philippine exporters? Aside from waiting for Philippine government action, can the Philippine exporters coordinate with their US importers, and discuss possible cost mitigating processes, such as “first sale for export” options, “country of origin planning” and “cost unbundling” options? These would be very specific mitigating processes, and would depend on the relationships between the Philippine exporter and the US importer.

Fifth, does the Philippines have a diverse enough export base, with other countries taking up Philippine exports, given the possible decrease in demand from US importers? Or can the Philippines still develop a diverse export base, regionally and/or globally?

The questions above cannot be answered overnight, and more work, more research and coordination with the Philippine government, should be done in order to arrive at actual, viable solutions. Nonetheless, these questions should have already been points of concern of the Philippine government, even before this imposition of reciprocal tariffs on the Philippines. There are even more questions expected when a deeper and more comprehensive analysis of the trade relations with the US are undertaken.

This should serve as a wake-up call to the Philippine government as to the seriousness of the current US government’s intention to address its trade deficit. This is likewise the impetus to drive the Philippine government to address concerns regarding trade relations with the US and other trade partners.

Andrew James Gerard 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. For more information, you may reach out to Tax Director Andrew James Gerard Ruiz or Tax Partner Ryan Cabello through [email protected], social media or visit www.home.kpmg/ph.