A delegation from the Philippine government is heading to Washington to negotiate with the Trump administration for cuts in United States (US) tariffs on products from the Philippines.
In trying to get lower tariffs, Special Assistant to the President for Investment and Economic Affairs (SAPIEA) Sec. Frederick Go has already said that they are after a free trade agreement (FTA) or a bilateral comprehensive economic partnership agreement with the US. Similarly, Trade Secretary Ma. Cristina A. Roque has been reported as saying that “everything is on the negotiating table,” including an FTA with the US.
Telegraphing to a bully that we’re willing to give anything he wants – including opening up the economy and protecting American interests here – is the worst possible starting point for any negotiations.
Dangerous dogma
The government, free market economists and exporters see the issue as the Philippines needing to do everything it can to get lower US tariffs on the country. This is reflected in how the public and media discourse frame the issue. The logic seems straightforward – lower tariffs mean more competitive exports, more trade, more growth and jobs protected.
Unfortunately, the reflexive “smaller is better” mentality is based on a narrow and incomplete understanding of trade. Tariff reductions can offer short-term export gains. However, it will be problematic if the trade-off is, as is likely, constraining the Philippines’ ability to pursue industrial policy and protect strategic sectors.
This mentality stems from policymakers’ obsolete notion that opening up the economy as much as possible will develop the economy. Among others, government interventions like tariffs are seen as distortions preventing optimal efficiency and mutual gains from trade.
All this is justified by invoking comparative advantage, or the idea that countries should specialize in producing goods they can produce most efficiently relative to others. This view treats comparative advantage as fixed, like a country’s climate or geography. In reality, countries can modify and create it over time through policy.
It is particularly glaring how the idolization of the theory ignores the fact that literally every major industrialized country in the world has used protectionist measures to consciously develop their domestic industries and change their comparative advantage over time. Tariffs, subsidies, foreign investment regulation, state direction and other such measures have been necessary for industrialization.
The US itself used high tariffs during its 19th-century industrialization period, under Alexander Hamilton’s famous “infant industry” arguments. Friedrich List pushed for tariffs and even trade retaliation in Germany during its own 19th century industrialization breakthrough. Japan’s Ministry of International Trade and Industry (MITI) shielded targeted industries from foreign competition to achieve rapid post-war industrial growth in the 1940s and 1950s.
South Korea and Taiwan heavily protected and subsidized industries in violation of textbook neoclassical trade dogma, yet achieved remarkable industrial transformation from the 1960s to 1980s. Even long after its industrial take-off under socialism, China continues to defy neoliberal orthodoxy with strongly state-led and protectionist industrial strategies.
Barriers to development
On the other hand, free trade and open economic policies prevent industrialization. None of the standard neoclassical economic textbooks today can explain why no country has industrialized in the last 45 years of neoliberal globalization. The last two countries to do so, South Korea and Taiwan, opened their economies only after building their domestic industrial foundations.
Even the Philippine experience confirms this. The country has been globalizing for the last 45 years through International Monetary Fund (IMF) stabilization programs and World Bank (WB) structural adjustment since the 1970s and 1980s, World Trade Organization (WTO) agreements since 1994, and 11 free trade agreements (FTAs) since 2005.
The country’s average tariffs, including those with the US, fell from over 40% in the 1970s to around 25% in the 1980s, 20% in the 1990s, and then around 6% from the 2000s to the present. The US is not actually much more open, maintaining 3-4% tariffs on Philippine products from the 2000s until Trump’s “Liberation Day.” After the latest tariff hikes, the US is now levying 20% on products from the Philippines versus some 6% on imports from the US.
The result? The manufacturing sector has been driven down from a peak of over 29% of gross domestic product (GDP) in the early 1970s to just 17.6% in 2024, which is the lowest in 75 years. The agriculture sector is down to an 8% share, the smallest in the country’s history.
Yet, Philippine economic policy and the trade delegation to Washington still insist on ideas that only make sense in the simplifications of textbooks and economic models.
The country’s development is better viewed through the lens of dynamic comparative advantage where it can and must create the conditions for industrialization, rather than passively accept what markets and foreign powers like the US dictate.
Power politics
Moreover, tariffs and trade rules aren’t just measures for improving production and productivity; they’re also tools of geopolitical strategy and statecraft. Mainstream economists often treat economic policy as if it occurs in a political vacuum and have difficulty grasping this.
This is on full display under the Trump administration. Economists who derided the arbitrariness of the “Liberation Day” tariff formula are still grappling with how this tariff shock-and-awe approach is part of a larger negotiating framework. The US is leveraging its economic power to extract policy concessions from weaker countries.
These concessions include economic measures like relaxing trade and investment rules to limit domestic regulation of American capital, tightening intellectual property provisions to protect American technology monopolies, strengthening investor protections to give American capital stronger footing even in national legal systems, and lowering taxes on American technology giants like Apple, Amazon, Google and Meta.
But these concessions also include pressure on very distant non-economic matters. Among many others, they have included: 50% tariffs on Brazil to censure the government for its “witch hunt” against former president Jair Bolsonaro; demands for Mexico to take more action to combat drug cartels and fentanyl trafficking; making Colombia accept deported migrants; pressing Russia to make peace with Ukraine; and an extra 10% tariff on countries that align with the “anti-American” policies of the BRICS group.
The Philippine government has not publicly disclosed the US demands for lowering the tariffs it imposes, and negotiators have answered vaguely and evasively when asked.
It’s also worth mentioning that the delegation’s eagerness for a US-PH FTA underscores its dangerously deferential stance. Even Washington itself has stepped back from entering new trade agreements in the past 17 years. If anything, its last FTA-related effort was in 2020 when it replaced the North America Free Trade Agreement (NAFTA) with a US-Mexico-Canada Agreement (USMCA) that gives the US more protections while opening up Canada and Mexico even more.
Real development
There are strong reasons to doubt that Trump’s tariffs will deliver on their hyped benefits of domestic reindustrialization and revenue generation for the US. Especially since, for now at least, there’s little evidence that the tariffs are located within a coherent industrial strategy. In any case, the US ignores textbooks with its unprecedented geoeconomic and geopolitical policy pressures.
The Philippines need not passively submit to US-centric trade norms or the demands of the Trump administration. National development must take precedence over market access, and sovereignty over compliance with US imperial dictates. Washington wants to lock the Philippines out of the very policy tools it needs to develop.
Real development doesn’t come from marginal improvements in export competitiveness, but from national industrialization that builds Filipino firms’ productive capacity, upgrades technology, and creates high-quality jobs. It comes from public policies that develop the agrarian economy, expand free or affordable public social services, and protects the environment. From this lens, fixating on a few tariff reductions distracts from the structural questions of national progress.
Instead of seeking tariff cuts in exchange for stifling economic concessions, the Philippines should defend its policy space and build regional cooperation to support its industrial agenda. The country has agency, and a progressive government would choose to mobilize moral, political, and diplomatic pressure.
The Philippines has limited leverage precisely because it confines itself to deeply unequal trade relations – and by acting so deferentially, it forfeits what little leverage it holds. But it’s never too late for the country to improve its edge by boldly asserting the national interest and building alliances with other affected countries, instead of giving up what little we have.
These bold changes can’t be done overnight but every foreign policy moment –such as the upcoming trade negotiations in the US or even the ASEAN chairmanship and summit in the Philippines next year –is important for asserting political will. The country’s economic policy needs to be so much more than merely managing our neocolonial dependency on the US.
