The suggestion of US President Donald J. Trump to remove “artificial” trade barriers and tariffs on American products is an interesting proposition for countries like the Philippines. Undoubtedly, his hard-line stance on reciprocity has ignited fears of a trade war among major economies, which may cause global recession. The United States and the European Union are among the top buyers of Philippine goods, and any uncertainty in these markets could harm Filipino exporters.
But Trump’s posturing is worth a second look.
The Philippines imports food and beverage (F&B) products from the US. Data from the US Department of Agriculture showed that the Philippines bought $2.59 billion worth of American agricultural products last year. The Global Agricultural Information Network report of the USDA noted that the majority of US farm exports to the Philippines consist of wheat, dairy, meat, poultry, nuts, fruits and vegetables.
This year the value of US food exports to the Philippines is expected to rise by 4.24 percent to $2.7 billion.
Washington considers the Philippines a valuable market for US food products given the Filipinos’ strong preference for American brands and the expansion of the upper and middle class. Removing tariffs on American F&B products would certainly make these items cheaper and expectedly hike demand for US food items. This would benefit American farmers who are seen incurring losses due to the retaliatory measures imposed by the trading partners of the United States. Washington earlier slapped tariffs on steel and aluminum produced by key US allies, and these countries have fired back by imposing tariffs on American goods.
Going by Trump’s insistence on reciprocity, Washington should do the same and scrap tariffs and nontariff barriers on Philippine food exports. This would help expand shipments to the US and also help Filipino farmers hike their income. NTBs such as unreasonable sanitary and phytosanitary measures, increase the transaction cost of Philippine exporters. Dismantling nontariff measures would be a welcome relief for Filipino businessmen who have hopes of getting or expanding their access to the US market.
While governments earn from tariffs and other fees imposed on exporters, the free flow of goods would be beneficial to trading partners, as this would spur the growth of their manufacturing sector and create more jobs. Revenues lost from scrapping tariffs could be recovered from the taxes of entrepreneurs who were encouraged by the removal of trade barriers.
Scrapping tariffs on all other goods would be beneficial to consumers around the world, particularly to the poor. Higher demand for consumer goods would further boost the manufacturing sector of developing countries and bolster global trade. Ultimately, this might just be the shot in the arm needed by the multilateral trading system.
The Doha Round—the latest round of trade negotiations among the World Trade Organization (WTO) membership that aims to reform the international trading system through the introduction of lower trade barriers and revised trade rules—broke down mainly because of the disagreement between rich and poor countries concerning farm subsidies and tariff cuts.
Among the key issues that remain unresolved to this day is the call of developing nations like the Philippines for the implementation of a special safeguard mechanism, which would protect their farm sectors from harmful import surges. Countries like India have also been pushing for public stock holding for food security. These issues have bogged down talks at the WTO for a new global trade deal.
If Trump were to be taken seriously, and if he himself is serious in pushing for the removal of tariffs and other trade barriers, then these issues would no longer have to present difficulties to global negotiators.