Even before US President Donald Trump took office back in 2016, he was already complaining about China’s alleged unfair trading practices. Hence it came as no surprise when the US launched an investigation into Chinese trade policies in 2017, imposing tariffs on billions of dollars’ worth of products made in China last year. Consequently, Beijing responded in kind.
Both countries agreed to stop new trade tariffs at one point in December after months of hostilities. But when optimism had grown over the possibility of a deal, it soon faded, and the US has made a move to double its tariffs on US$200 billion worth of Chinese products. Three days later, Beijing hit back with tariff hikes on US$60 billion worth of US goods. As this trade war rages on, a growing number of companies are starting to feel the pain.
The automotive industry appears to have been taking the brunt of this conflict, with three major companies warning that changes in trade policies are hurting their performance. Ford and General Motors have cited higher steel and aluminum prices caused by the US tariff increase as the reason for lowered profit forecasts in 2018. Fiat Chrysler also cut its revenue outlook in 2018 when sales in China fell as buyers delayed purchases in anticipation of lower car tariffs.
Some companies in the food and beverage industry are also lowering their outlooks and increasing their prices so that they can cope with the existing state of affairs. Tyson Foods, the world’s second largest processor and marketer of meat, is slashing its profit forecast due to retaliatory duties on pork and beef, which has lowered US meat prices. Coca-Cola has also announced that it will increase its prices in North America to compensate for the higher metal prices and freight rates.
But despite these adverse effects to companies in different industries, this trade war has opened doors for other countries, particularly the Philippines, for a possible redirection of trade.
Positive impact on the Philippine economy from the US-China trade war
The Philippines stands to gain from the raging China-US trade war, with other ASEAN economies being favored for the possible rechanneling of trade.
According to Asian Development Bank (ADB) statistician Mahinthan Mariasingham, the negative effects from the trade war can be offset by the likely redirection of trade, which would benefit the Philippines in the medium to long term.
The country’s manufacturing industry could expect a 0.2-0.7 percent boost mainly in the electronics sector if the economy is capable enough to attract more trade from the affected economies from this trade war. Mariasingham also noted that even in the absence of the conflict, companies would move out of China due to its diminishing competitive advantage as a major manufacturing hub for global value chains (GVCs).
Is it a good time to move your business to the Philippines?
With this new status quo, the US will now choose to import from companies from other countries unaffected by the new tariffs. ASEAN countries like the Philippines may potentially receive orders from the US, allowing them to expand their domestic operations.
The Philippines is in a favorable position in this ongoing trade war due to the “trade redirection” which will eventually become evident in many sectors in the Philippines. In fact, J.P. Morgan reports that the bulk of the relocation can be expected next semester.
However, this will entirely depend on the country’s ability to promote domestic manufacturing investments and attract foreign investors who are seeking refuge from this escalating trade war.
Perhaps the country’s best bet is its export industry. A total of 16.9 percent of the Philippines’ exports form part of China’s value chain, which is one of the highest in Southeast Asia. But despite this impressive number, this only account for 3.2 percent of the country’s gross domestic product.
The country can position itself to attract both Chinese companies that produce goods for the US and American businesses that supply for the massive Chinese market. The increasing labor costs in mainland China, and the Philippines’ proximity to profitable Asian markets can boost its credentials as an alternative hub for manufacturing. The country can also become an alternative supplier of consumer goods to both countries involved in the trade war.
Types of businesses you can set-up in the Philippines amidst the trade war
With the industries that could potentially benefit from this ongoing trade war between the two economic superpowers, here are the types of businesses you can set up:
Export
According to a report by the United Nations Conference on Trade and Development, of the US$110 billion in US exports subject to China’s tariffs, around 85 percent will be captured by firms in other countries. American firms will retain less than 10 percent, and Chinese companies will have only a 5 percent share.
The Philippines is estimated to gain an additional 3.2 percent of total exports from the trade conflict, and firms focused on machinery, wood products, furniture, communication equipment, chemicals, and precision instruments are some of the best businesses to set up according to the report.
Socioeconomic Planning Secretary Ernesta Pernia also claimed that the trade war would have a positive net effect on the country, which would gain millions of dollars in exports to the US composed mainly of electronic goods.
Manufacturing
The Philippines could further stand to benefit from the ongoing trade war between two of the world’s largest economies, this time as a production site for affected manufacturers.
The boost is projected to be focused primarily on electronics once the country’s economy becomes attractive to the countries affected by the trade war.
Advantages of moving your business to the Philippines in light of the US-China trade war
If the conflict worsens, the Philippines has everything to gain if the country plays its cards right. It appears that both the US and China won’t relent, so it would be a good move for businesses to set up shop in the Philippines. To avoid paying high tariffs on goods, it would make sense that the US and China would instead look for suppliers elsewhere. And with the Philippines becoming an attractive option, businesses would likely boom if both countries strike a good deal with enterprises operating in the country.
Additionally, there exist several opportunities in the form of trade diversification. The country boasts of a young population, a flourishing middle class, skilled workforce, and increased investment in infrastructure, giving the Philippines a huge potential. It has even claimed the top spot in the world’s investment destination in 2018.
Conclusion
It would be best to strike while the iron is hot. Move or start a business in the Philippines! With the Philippines finding itself in a favorable position in this ongoing trade war, it’s relatively easy to make your business work in the country. Production should be focused on the export and manufacturing of electronics and other goods such as machinery, wood products, furniture, communication equipment, chemicals, and precision instruments, which are all expected to be in demand if the trade war doesn’t let up.
If your business is greatly affected by the conflict or you’re looking for other ways to generate revenue, moving your company to the Philippines is highly favorable, given the circumstances. You think it might be tough, but all you need to do is get help from EnterPH. Your business concerns regarding your move to the country will be addressed without any hitch, because your success is our success.
Rocky Chan is a lawyer and business consultant who excels in corporate formation, immigration procedures, and client relations. In the last 7 years, he honed his craft in the field of foreign investment consultancy.
