As global trade tensions intensify, the Philippines finds itself caught between its two largest economic partners — the U.S. and China. In 2024, the U.S. remained the Philippines’ top export market; China continued to dominate its imports. This dual dependency presents a growing strategic challenge for Manila, particularly amid escalating tariff threats from Washington, its long-standing defence ally, and ongoing maritime tensions with Beijing in the contested South China Sea.
In response to U.S. President Donald Trump’s April 2 ‘Liberation Day’ reciprocal tariffs, the Philippines has initiated negotiations with the U.S. while accelerating efforts to diversify its trade portfolio. These efforts include ramping up discussions on ongoing free trade agreements with Canada and the European Union while expanding trade ties with emerging markets closer to home. Notably, under Trump’s reciprocal tariff plan, the Philippines benefits from comparatively lower duties, positioning it as an attractive destination for investment and potential supply chain relocation. However, realizing these opportunities will require addressing long-standing challenges, particularly the Philippines’ weak logistics infrastructure and persistent regulatory inefficiencies.
What is the Philippines’ trade exposure to the U.S. versus China?
In 2024, the Philippines exported C$19.8 billion in goods to the U.S. and imported $9.3 billion, resulting in a C$6.8 billion trade surplus, highlighting its strong reliance on the American market. Much of these exports consisted of electronics and semiconductors — industries that are not only economically vital but also increasingly entangled in geopolitical tensions and supply chain disruptions.
In contrast, the Philippines exported C$13.1 billion worth of goods to China and imported C$45.8 billion, making China the country’s most significant source of imports. This trade imbalance, heavily skewed towards raw materials and intermediate goods, exposes Manila to potential economic coercion from Beijing. The Philippines’ strategic dependence on the U.S. for security and defence, juxtaposed with its economic reliance on China, places it in a precarious geopolitical position.
How has the Philippines responded to U.S. trade pressure and tariff threats?
In response to the 17 per cent reciprocal tariffs by the U.S., Manila has explored both bilateral and regional channels for negotiation with Washington. On May 2, Philippine officials met with U.S. Trade Representative Jamieson Greer to discuss “mutually beneficial ways to strengthen bilateral relations.” While details of the meeting remain undisclosed, the Philippine government has signalled possible trade concessions, such as lowering duties on U.S. imports. The Philippines also reaffirmed its support in an April 10 ASEAN joint statement opposing retaliatory measures against the U.S.
While the U.S.–China trade war and rising tariffs present hurdles for Philippine exports, they could also create new opportunities in a world of rapidly shifting supply chains. Not only does the Philippines’ comparatively lower tariffs within the region offer an attractant to businesses looking to relocate, but its low labour costs and English-speaking workforce also enhance its appeal as an alternative manufacturing hub to countries like Indonesia and Vietnam.
Additionally, under the reciprocal tariffs scheme, the Philippines enjoys broader tariff exemptions, with around one-third of its exports comprising high-value electronic goods such as memory chips and semiconductors subject to U.S. exemptions. However, the nation’s ability to capitalize on these new opportunities will depend on how effectively it can attract and retain new investments and improve its logistics networks. The Philippines' foreign direct investment (FDI) rose slightly from C$8.2 billion to C$8.7 billion between 2022 and 2023. However, the country’s FDI trails behind its regional neighbours due to ongoing issues of underdeveloped financial systems and a lack of transparency in regulatory processes.
What are the opportunities and risks of closer trade ties with China?
Like many Southeast Asian nations, the Philippines has reaped some benefits from deeper economic ties with China, particularly through increased market access and investment. In 2024, China accounted for one-quarter of the Philippines’ total imports. Chinese companies have also emerged as major investors, committing nearly $30.8 billion in foreign direct investment between 2010 and 2023 toward specific infrastructure and community development projects across the country.
Chinese investment in the Philippines has also continued to rise despite the more assertive diplomatic stance the Philippines has taken towards China under President Ferdinand Marcos Jr. In contrast to his predecessor, Rodrigo Duterte (2016–2022), who pursued a more conciliatory approach toward Beijing in hopes of securing financial support, Marcos Jr. has adopted a firmer stance against China’s maritime incursions in the South China Sea and reinforced strategic ties with the U.S. and its allies. Despite rising diplomatic tensions over maritime disputes, China continued to provide roughly C$279.5 million in infrastructure loans and offered the Philippines a C$304.3 million development grant in 2023. Between January and September 2024, Manila approved Chinese project registrations totalling C$25.2 million, more than double the amount recorded in 2023.
Amid escalating global trade tensions and growing uncertainty over U.S. engagement in Southeast Asia, the Philippines walks a tightrope in managing its relationship with China. While it continues to rely on critical funding from Beijing, Manila is wary of the sovereignty risks that economic dependence on China can pose, particularly in light of ongoing maritime incursions. As a result, the Philippines has adopted a dual-track approach: welcoming Chinese investments that align with national development goals while maintaining a firm stance on territorial and security issues.
What are the Philippines’ non-U.S., non-China alternatives? Could ASEAN integration help?
Aside from its top two partners, the U.S. and China, the Philippines’ leading export markets in 2024 included the ASEAN bloc (15%), Japan (14.1%), the European Union (11%), and South Korea (4.9%). Following the U.S. announcement of reciprocal tariffs on April 2, the Philippine government expressed its intent to diversify trade with African and Latin American countries. However, trade with these regions remains limited. In 2024, Mexico — Manila’s largest export destination in Latin America — accounted for just 1.2 per cent of total Philippine exports. Meanwhile, African countries collectively accounted for only 0.25 per cent of total exported goods.
In December 2022, the Philippines announced preliminary FTA discussions with countries Argentina, Brazil, Chile, and Mexico. However, most of these talks remain in their early stages with the exception of Chile, where formal negotiations are scheduled to begin in July 2025. Additionally, beyond the absence of formal trade agreements with Latin American nations, Philippine businesses face significant informational gaps about these emerging markets and pathways to entry. These challenges, combined with cultural and language barriers, further complicate the Philippines’ efforts to infiltrate new markets.
In addition to African and Latin American economies, trade negotiations are also underway with the European Union, with a deal expected by 2027. The Philippines' garments sector is expected to benefit significantly from the trade deal, with projections of up to 250,000 new jobs and C$838.6 million in additional export value within the first two to three years of implementation. Beyond boosting trade, these agreements with Western allies reflect a broader strategic pivot. As global tensions escalate and U.S. foreign policy becomes increasingly erratic, especially under a second Trump presidency, the Philippines is seeking to forge partnerships with alternative, like-minded economies.
In contrast, deepening intra-ASEAN trade could help the Philippines, an ASEAN member, rebalance its export portfolio and reduce its dependence on the U.S. and China, especially in its high-performing sectors, including electronics, semiconductors, and textiles. As countries like Malaysia, Vietnam, and Thailand further develop their own semiconductor industries, a more integrated ASEAN supply chain could allow the Philippines to reinforce its role in the regional value chain. Between January and August 2024, semiconductor products accounted for 77 per cent of the Philippines’ total electronics exports, highlighting the country’s strength in the downstream segment of the industry, including assembly and packaging. As more regional partners shift toward upstream processes, such as chip design and innovation, the Philippines could benefit from the rising demand in downstream operations.
What specific opportunities exist for Canada to deepen trade ties with the Philippines?
Amid rising protectionism and the threat of a global economic slowdown, the Philippines is actively pursuing trade diversification. Should the U.S. fully implement President Trump’s reciprocal tariffs, key Philippine industries — including electronics, textiles, and agriculture — could face substantial losses. To mitigate this risk, Manila is strengthening ties with alternative partners, including Canada.
In 2023, Canada imported C$2.2 billion in goods from the Philippines and exported C$1.2 billion, making the Southeast Asian nation Canada’s third-largest export market within the ASEAN bloc. Meat and wheat were among Canada’s top exports to the Philippines, valued at C$255 million and C$235 million, respectively. Since 2020, Canadian meat exports to the country have more than doubled, with a further 22 per cent increase projected by 2030. In contrast, Canada currently supplies just 4 per cent of the Philippines’ total wheat imports, highlighting substantial potential for growth in this sector.
In May 2025, the Philippines expressed its interest in formally joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). In December 2024, Canada and the Philippines began exploring a potential free trade agreement. Additional preliminary discussions were held in June 2025, with exploratory talks expected to conclude by the end of the year. An FTA with Canada could offer significant benefits for the Philippines by reducing tariffs on key exports —including electronics, semiconductors, and agricultural products — while supporting efforts to diversify its export markets beyond the U.S.
Looking beyond trade, the clean energy and cybersecurity sectors present strong opportunities for expanded co-operation with Canada. In 2024, the Canadian government voiced its support for the Philippines’ clean energy transition, particularly efforts to diversify toward energy sources such as nuclear, an area in which Canada has considerable expertise. Additionally, with Canada recognized as a global leader in cybersecurity, the Philippines stands to benefit from ongoing joint cyber training and governance initiatives, as well as from Ottawa’s deployment of cyber attachés across the Indo-Pacific.
• Edited by Vina Nadjibulla, Vice-President Research & Strategy, APF Canada
