Electronics exemption from 19% US tariff seen limiting GDP impact

By Kenneth Christiane L. Basilio, Reporter

ECONOMIC PLANNERS said the 19% US tariff on Philippine exports could trim gross domestic product (GDP) growth by about 0.1% if the exemption on electronics is maintained.

The Department of Economy, Planning, and Development (DEPDev) said the US tariff impact was about 0.1211% of GDP — equivalent to about $489.6 million, according to the results of a simulation exercise submitted to a House of Representatives committee, a copy of which was obtained by BusinessWorld.

The impact could rise slightly to 0.1236%, or $508.9 million if tariff exemptions on electronics are removed.

“The estimated negative impact on real GDP is for the immediate term only and may turn positive over the medium term,” DEPDev said in a paper.

The US began imposing a 19% tariff on Philippine goods starting Aug. 7 as part of President Donald J. Trump’s drive to narrow his country’s trade deficit and boost domestic manufacturing.

The impact on Philippine GDP comes at a time when the economy is being dragged down by weak infrastructure spending.

Growth slowed to 4% in the third quarter, a four-year low that is likely to cause the government to miss its 5.5%–6.5% full-year target.

The Philippine Tariff Commission (TC) described the economy as “consumption-driven” and “services-oriented,” partly sparing it from shifts in global trade.

“A significant portion of its economy is not directly dependent on imports, and the impact of the additional tariff on Philippine exports would be tempered,” it said in a separate report, a copy of which was also obtained by BusinessWorld.

Economists said the Philippines should diversify its trade markets to shield the economy. The Philippines is currently seeking to forge free trade agreements (FTAs) with Canada and the European Union.

Authorities should pursue trade deals with wealthier countries in Asia, the Middle East and Europe, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said, while maximizing opportunities from existing FTAs.

“To turn a near-term hit into a medium-term gain, the Philippines needs to diversify export markets, move up the value chain and speed up investment facilitation so firms can reconfigure supply chains,” John Paolo R. Rivera, a senior research fellow at the Philippine Institute for Development Studies, said via Viber. 

“Securing trade preferences, improving logistics and power costs and supporting exporters’ productivity will be crucial so tariff pressure accelerates upgrading rather than erodes competitiveness,” he said.

DEPDev said the government is negotiating with the US to “preserve domestic interest while addressing trade concerns.” Exemptions to the tariff policy currently cover selected agricultural goods and electronics, the Philippines’ top exports to the US.

“Even with the negative impact, gains in exports to the US are likely to be realized particularly for sectors that are exempt from the US retaliatory tariffs,” it said, citing transport equipment, wood products, metals and mineral products.

But it warned that if Washington were to remove current exemptions on Philippine products, it could trigger a decline in exports.

The TC said the Philippines posted a $2.38‑billion trade surplus with the US from 2022 to 2024.

“The US was the Philippines’ top export market and fourth most important source of imports,” it said.

It said the 19% tariff could raise the cost of Philippine goods to US consumers by $1.7 billion, making them more expensive for US buyers and potentially dampening demand and export sales for manufacturers.

Talks between the Philippines and the US on a reciprocal import deal are still ongoing. In July, Mr. Trump said the Philippines will open its markets to the US and implement zero tariffs on US goods like soybeans, wheat and pharmaceuticals.

The TC said US wheat is subject to an average 2.6% most-favored-nation (MFN) tariff rate, while soybeans face 0.96%, medicines 1.95% and automobiles 27.64%.

Goods the US wants exempted from Philippine tariffs accounted for 16% of total imports from the US, it said.

“The proposal to decrease the MFN tariff rate on subject articles to 0% is estimated to reduce tariff collections by P5.73 billion for 2026,” the TC said. The Department of Finance has said that foregone revenue from such a zero-tariff scheme could range between P3 billion and P6 billion.

The government should strengthen its enforcement of value-added tax and excise tax collections to help offset the revenue foregone from zero-tariff treatment on selected US goods, Mr. Rivera said.

“Over time, higher downstream activity — like cheaper inputs boosting manufacturing, health access, and exports — can recoup revenues, provided reforms are paired with disciplined spending and targeted, time-bound incentives,” he said.