By Jam Magdaleno
DONALD TRUMP’s threatened 20% tariff on Philippine exports — now negotiated down to 19% — has landed with painful clarity. Even more striking, the Philippines has accepted this steep tariff while keeping a zero percent duty on specific US imports such as automobiles. For a country that counts the US as among its top export markets, this is an incontestable gut punch. It is a reminder of how fragile our position is in global trade. But more than that, it reveals a deeper and older problem: that decades of economic growth have not insulated us from shocks, nor have they delivered the competitiveness we need.
The country’s vulnerability to external shocks is not new. In fact, we’ve lived with it for decades. What’s troubling is that even after multiple periods of incremental growth, we remain uncompetitive, under industrialized, and overly reliant on labor exports, foreign aid, and preferential trade agreements. Rather than fostering resilience, our policy posture has too often favored political caution over structural reform.
Consider the 1987 Constitution’s economic restrictions — caps on foreign ownership on land, public utilities, education, and mass media — that stand out as archaic even by Southeast Asian standards. In contrast, Vietnam, despite its nominally socialist framework, allows 100% foreign ownership in key industries and consistently ranks higher in FDI inflows. Indonesia has revised its Negative Investment List to open more sectors to foreign participation. Even Myanmar, before its democratic backsliding, liberalized its telecoms sector and saw rapid infrastructure investments.
While our neighbors embraced globalization, we remained hesitant, clinging to an inward-looking economic nationalism that has made us less competitive in a world increasingly driven by capital, technology, and talent mobility. The Philippines still bars foreign ownership of land and restricts equity in higher education and mass media at a time when knowledge economies are thriving precisely because of global partnerships.
To be fair, reforms have happened. The Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act restructured the tax system for investors. Amendments to the Foreign Investment Act, the Retail Trade Liberalization Act, and the Public Service Act have opened up sectors like telecommunications, airports, and shipping. These were long-overdue reforms that finally signaled a shift toward a more open, investment-friendly economy.
According to the OECD’s 2020 FDI Regulatory Restrictiveness Index, the Philippines ranked as the third most restrictive country to foreign direct investment out of 84 economies surveyed — behind only Libya and Palestine. In contrast, Vietnam ranked among the least restrictive in Southeast Asia, with full foreign ownership allowed in most sectors, including education, manufacturing, and IT.
In agriculture, the Rice Tariffication Law (RTL) of 2019 replaced quotas with a 35% tariff (now relaxed to 15%), created a P10-billion annual fund for farmer modernization, and lowered rice prices for consumers. Despite early hiccups, such as drops in farmgate prices and delays in support services, there is evidence of impact: from 2019 to 2023, average dry-season yields rose from 3.63 to 4.34 metric tons per hectare, and farm incomes increased by P9,000 per hectare. The Department of Economy, Planning, and Development (formerly known as the National Economic and Development Authority or NEDA) projects a 1.2 percentage-point drop in poverty by 2025, largely due to cheaper rice.
What this shows is that even controversial reforms can deliver when they focus on improving factor productivity in land, labor, capital, and energy.
This is where the future lies. We can no longer rely solely on remittances from overseas Filipino workers or cyclical BPO earnings as economic crutches. The pandemic made this clear, and rising global protectionism only underlines it.
Trump’s tariff impositions are indicative of a global shift towards reshoring and friend-shoring, as multinational firms reconfigure supply chains to reduce dependency on China. Southeast Asia has emerged as a major alternative production base amid the US-China trade war. Vietnam alone has attracted over $20 billion in foreign investment relocating from China since 2018. In Indonesia, a consortium led by LG Energy Solution committed roughly $9 billion to build an end-to-end electric-vehicle battery ecosystem, while China’s CATL recently broke ground on a $6-billion plant for integrated battery production. Malaysia is also riding the wave, Penang drew in $13.1 billion in FDIs in 2023, with semiconductor giants like Intel wiring in $7 billion for advanced chip packaging.
By contrast, the Philippines ranked only 9th in ASEAN FDI inflows in 2022, attracting just $9.2 billion — anemic compared to its neighbors.
This is a watershed moment. With a well-educated, English-proficient workforce and strategic geography, the Philippines has every trait needed to ride this shift, but only if we urgently liberalize investment, upgrade infrastructure, and eliminate outdated constitutional and regulatory constraints.
The next round of reforms must go deeper. A shortlist of priorities includes:
• Amending the Constitution to remove the remaining foreign equity restrictions in utilities, land, education, and media, thereby unlocking long-term capital flows and knowledge transfers;
• Modernizing land governance by completing the digitalization of land records, accelerating titling, and allowing efficient land markets to emerge, which are critical for rural development, food security, and housing;
• Further liberalizing the energy sector by removing legal barriers to full foreign participation and reforming outdated pricing models to spur investment in renewables and reduce power costs, an area where we lag behind Malaysia, Vietnam, and Thailand;
• Fixing logistics and trade infrastructure by enabling local government units to enter into performance-based PPPs and coordinating port, road, and inter-island connectivity; and,
• Aligning labor supply with industrial policy through greater investment in vocational training, apprenticeships, and STEM education.
Take Vietnam’s success in electronics and garments, now our direct export competitor. Its liberal investment environment, land use reforms, and relentless focus on industrial parks have allowed it to attract major manufacturers like Samsung and Foxconn. The Philippines, despite its talent pool and geographic advantage, remains a second-choice site for multinational firms.
As I earlier mentioned, this is not a problem of labor — Filipino workers are among the most educated and English-proficient in the region. The bottleneck lies in our systems: regulatory uncertainty, infrastructure gaps, high energy prices, and constitutional barriers to capital, issues that only policy reform can fix.
We must move fast. The return of protectionism in the West, driven by domestic politics and geopolitical tensions, means small economies like ours need to cultivate a real industrial base, attract long-term investment, and build a regulatory ecosystem that supports innovation and enterprise. This also requires rejecting populist shortcuts. Protectionism at home, in the form of subsidies or import bans, only deepens inefficiencies. Worse, it isolates us from global value chains. The path forward is through openness, and this requires strong political will.
The 19% tariff should serve as a wake-up call. We can no longer expect benevolence from the global trading system, nor can we expect productivity gains from decades-old laws and institutions designed for a very different world. Building a resilient economy now means embracing the hard reforms that will finally allow the Philippines to compete on its own terms.
Jam Magdaleno is a political and economic researcher, writer, and communication strategist. He is the head of Information and Communications of the Foundation for Economic Freedom, a Philippine-based think tank.
