By the TessDrive Team
What’s been talked about lately in economic circles has been the trade setup resulting from the meeting between US President Donald Trump and Philippine President Bongbong Marcos at the White House. Essentially, the highlight of this setup is that American goods entering the Philippines will get zero tariffs, while Philippine exports entering the United States get 19% tariff. This is from a previous setup where a 30-percent tariff was placed on products originating from the States.
That drastic drop—from 30 to 0—is a seismic shift for the Philippine automotive industry, and has made our local auto parts assemblers fear that they will suffer the brunt of this big trade readjustment.
Here’s what analysts have to say about what may be some of the most disruptive policy changes the Philippine auto industry has faced in decades.
“For the auto industry, there are mixed emotions on this new tariff setup. The local auto assemblers—all Japanese companies—will be greatly affected. US-made products will obviously be competing with the local assembled ones like Toyota Vios, Tamaraw and Mitsubishi Mirage. However, if we look at Ford, they produce Ranger and Everest in Thailand and already at zero tariff under Atiga (Asean Trade in Goods Agreement). US-made models like Toyota Land Cruiser and Nissan Patrol and other Korean and Japanese models produced in the States will benefit with this new tariff. GM, Chrysler, Jeep and Tesla will be competitive under this new level playing field where every imported CBU (completely built unit) from the States will have zero tariff,” said Ferdinand Raquelsantos, president of the Philippine Parts Makers Association.
Raquelsantos, who is also the Electric Vehicle Association of the Philippines chair emeritus added: “Note that until 2027, all electric vehicles, wherever they come from, are zero tariff.”
Raquelsantos further said, “For most of the local auto parts makers that export to the States, there will be an increase in tariffs, from 5 to 19% under the GSP (General System of Preference) accorded to some Philippine products. Hopefully, this won’t be an issue if other countries that supply the same products are also imposed with higher tariffs. I believe, as we experienced up to now, US auto makers still prefer Philippine component parts due to quality,” added Raquelsantos.
Three days ago, the Bilyonaryo channel interviewed Joseph Purruganan, co-convenor of the Trade Justice Pilipinas Network, a coalition of farmers, workers, and advocates calling for equity in trade. He said that the trade deal between the Philippines and the United States should be a wake-up call for Philippine policymakers.
“One report that I read, for example, characterized the outcome not so much as a deal but as a loose framework of a deal. So we feel that the devil is in the details. The auto industry is a big concern, especially (since) we are dealing here with assemblers like Toyota and Mitsubishi. They are already struggling to compete with cheaper imports and the entry of US-made vehicles at zero will only make things worse. US brands benefit from scales, subsidies, incentives and all of that. Even local auto parts, many of which are small and medium enterprises, will feel the blow. This threatens the entire automotive value chain, has an impact on jobs, livelihood and domestic production and could also trigger worst-case scenario plant closures, layoffs and a sharp decline in value-added manufacturing directly undermining the government’s Comprehensive Automobile Resurgence Strategy,” said Purugganan.
However, Atty Rommel Gutierrez, president of the Chamber of Automotive Manufacturers of the Philippines (Campi), has a different view: “We should look at the positive side of it. There is potential to enhance the competitiveness of local manufacturing given the advantage we have in terms of lower tariff vis-a-vis our neighboring competitors.”
Webin Manzana of Hancars, an independent car importer in the Philippines, observed, “The zero tariff for US-made cars can now compete with Japanese cars made in Thailand. But there aren’t so many US-made small cars and SUVs which are suited for our market. Most US cars are big and are in the luxury high priced range. They have stopped making small cars that compete with Japanese Thailand-made cars. Japanese cars made in the States can be imported by Toyota Philippines like the Sienna and Sequoia with zero duties, but are already zero duty even since a year ago due to their being hybrid. The US-made Tesla is zero duty since it’s an EV. Korean US-made cars that can benefit on zero duties are only the Hyundai Santa Cruz pickup and Kia Telluride SUV, but both are sold in the US market only.”
Manzana said that, overall, “the zero duty on US-made vehicles will have a small impact in the market. Only Ford and Chrysler would benefit more from this zero duty.”
A high-ranking executive from a Japanese car brand said, “I don’t think local automotive manufacturing will be affected by the zero tariff for imported CBUs from the States. The models that are normally being manufactured in the Philippines are regional models which are usually mass models, which cater to a market that is so different to the market of models that are produced in the States,” he said.
Some pundits still feel that the 30% tariff wall was the primary reason the local assembly of mass-market cars like the Vios, Tamaraw, and Mirage was viable. With that protection gone, they are now fully exposed to competition from more technologically advanced or larger vehicles from the States, which now benefit from a massive price correction. For distributors of American brands and other models produced in the States, this is an unprecedented windfall. Others see it as a big blow to Philippine auto parts exporters.
The other side of a brutal equation sees that the 19% tariff is not a negotiating point, but a punitive measure that makes Philippine-made parts instantly uncompetitive. Many view the quality of products as no longer enough. The argument that “US automakers prefer Philippine quality” will be sorely tested. While quality is crucial, a 19% price gap is almost impossible to justify to shareholders. US clients will likely be calling their Philippine suppliers immediately to either cancel contracts or demand that the supplier absorb the tariff cost, a burden that may prove too heavy for the supplier to bear.
Banner photo shows US President Donald Trump and Philippine President Ferdinand ‘BongBong’ Marcos meeting at the White House (Photo by pco.gov.ph)