Trump’s protectionism poses big threat to PH
US President Donald Trump’s “America first” protectionist policy will inflict losses on the Philippines’ two biggest sources of dollars—the business process outsourcing (BPO) industry and remittances from Filipinos, London-based economic research firm Capital Economics said Friday.
“Mexico and China were the focus of Donald Trump’s anti-free trade rhetoric on the campaign trail. But the Philippines also stands out as one of the most vulnerable emerging economies to any moves by the US toward protectionism,” Capital Economics said in a report titled “Trump’s ‘America first’ policy poses threat to Philippines.”
In terms of merchandise trade, the impact of US protectionism would likely be minimal, Capital Economics said. “The Philippines’ exports of goods to the US are worth the equivalent of around 3 percent of its GDP (gross domestic product), which makes it less vulnerable than other countries in emerging Asia to moves by the US to restrict imports, such as through a border adjustment tax.”
But the Philippines’ services exports is another story.
It noted outsourcing firms have received criticisms from the hotel mogul, who led a highly divisive elections last November. This early, “a number of outsourcing companies in the Philippines have put expansion plans on hold, while some are reportedly already drawing up precautionary plans to relocate some operations back to the US.”
The BPO sector, mostly servicing US firms, brought in revenues equivalent to 8 percent of the Philippine’s GDP in 2016. It also employs over one million Filipinos.
The plan to tax cash remittances, meanwhile, may also have an impact on the money being sent back by Filipinos living and working in the US. Around four million Filipinos are currently living there, sending back remittances equivalent to around 3 percent of the Philippines’ economy.
“Unlike the 6.5 million or so undocumented Mexicans living in the US, the Filipinos living in the US are mostly there legally and have not been threatened with expulsion. But if the US were to press ahead with a tax on remittances, which it has already threatened to do against Mexico, it could cause remittances growth to slow sharply,” Capital Economics warned.
The latest Bangko Sentral ng Pilipinas data showed that cash sent home through banks by Filipinos working and living abroad jumped by almost a fifth to $2.217 billion in November last year. The United States was among the top five sources of remittances a month before the Christmas celebrations. The list also included Japan, Qatar, Saudi Arabia and the United Arab Emirates.
The BSP had projected cash remittances to grow 4 percent and reach $26.6 billion by end-2016. The BSP sees another 4-percent growth this year to hit $27.7 billion.
In the report, Capital Economics kept its GDP growth forecast of 6.5 percent for 2017 or at the lower end of the government target, even as “the risks are firmly to the downside.” The government targets 6.5-7.5 percent growth this year.
“In particular, any aggressive move by Trump to target the outsourcing sector would prompt us to cut our forecasts,” according to Capital Economics.
The firm also earlier warned of the impact of President Rodrigo Duterte’s “erratic” behavior. Last week, the President threatened to declare martial law in order to boost the administration’s war against illegal drugs.
“We remain hopeful that he [President Duterte] won’t. For starters, healthy fundamentals, including a current account surplus and low debt levels, mean a sudden crisis is unlikely,” it said. —Ben O. de Vera