REFLECTION OF AN ECONOMICS

THE SPILLOVER EFFECTS FROM UNITED STATES POLICY SHIFTS AND LOWER
GROWTH IN CHINA

The Philippines’ economic freedom score is 63.8, making its economy the 70th
freest in the 2019 Index. Its overall score has decreased by 1.2 points, with drops in
scores for monetary freedom, government integrity, and the tax burden outweighing a
higher score for property rights. The Philippines is ranked 15th among 43 countries in the
Asia–Pacific region, and its overall score is above the regional and world averages.

Continued strong economic growth, driven in part by ambitious state-funded

infrastructure projects, has allowed the government to prioritize domestic law-and-order
issues over economic policy concerns. Investors remain concerned about President
Duterte’s heavy-handed rule, although Duterte has consolidated support from Congress.
The absence of entrepreneurial dynamism electronics, apparel, and shipbuilding has
been growing rapidly. Remittances from overseas workers are equivalent to nearly 10
percent of GDP.

Laws protecting property rights are weakly implemented. Judicial independence is

strong, but the rule of law is generally ineffective. Courts are inefficient, biased, corrupt,
slow, and hampered by low pay, intimidation, and complex procedures. Corruption and
cronyism are pervasive. A few dozen leading families hold a disproportionate share of
land, corporate wealth, and political power. Anticorruption measures are not enforced.

A series of reforms has been pursued to enhance the entrepreneurial environment.

Gradual improvement of the regulatory environment includes reduction of the time and
cost involved in fulfilling licensing requirements. The labor market remains structurally
rigid, but existing regulations are not particularly burdensome. The government budgeted
a record $3.03 billion in subsidies to state-owned enterprises in 2018 but decided to scrap
agricultural subsidies.

The combined value of exports and imports is equal to 70.7 percent of GDP. The
average applied tariff rate is 3.4 percent. As of June 30, 2018, according to the WTO, the
Philippines had 286 nontariff measures in force. Many agricultural imports face additional
barriers. Investment in several economic sectors is restricted. About 39 percent of adult
Filipinos have access to an account with a formal banking institution.

As the trade war escalates between the US and China – the world’s two largest
economies – their trade partners are becoming increasingly wary. The timing could not
be more ominous for the Philippines, one of the world’s fastest-growing economies, a
long-time ally of the United States trying to bolster its economic ties with China. China
and the US currently represent the largest and third-largest trade partners of the
Philippines respectively, while the US, Hong Kong and mainland China form the country’s
top three export markets, and China and the US constitute the largest and fourth-largest
sources of its imports. The Philippines is already experiencing high inflation and is still in
the early stages of addressing its decades-old infrastructure deficit, so the trade war casts
a long shadow over the country’s prospects.

It is an active player in the increasingly integrated global supply and production

chains through which goods bound for external markets like the US and China pass.
There is potential for the trade war to disrupt this, inflicting collateral damage on national
economies in the chain. A total of 16.9 per cent of Philippine exports form part of China’s
value chain, among the highest percentage in Southeast Asia. However, these only
account for about 3.2 per cent of its GDP. In contrast, Malaysia and Singapore have
higher exposure, at 7.3 per cent and 5.7 per cent respectively.

Migrant Filipino workers in export-oriented factories in Taiwan, South

Korea and Japan who churn out intermediate or final goods destined for China, America
or third-party markets may also be affected. Being less dependent on exports could give
the country some breathing space, but its relatively high volume may eventually hurt it.

That said, there are also opportunities, in the form of trade diversification. With
its young demography, burgeoning middle class, proficient manpower and increased
investment in infrastructure, the Philippines has potential: it has emerged as the world’s
top investment destination this year.
 As such, the country can position itself to attract Chinese enterprises producing
goods for the US, as well as American firms producing for the huge China market.
Increasing labor costs on the Chinese mainland and the Philippines’ proximity to
lucrative Asian markets can buttress its credentials as an alternative manufacturing hub.
The country can also serve as an alternative supplier of goods (for example, fruits,
fisheries and electronics) to both the US and China.
 BASIC
MACROECONOMICS

LENEIGEN I. TEJERO ALJON NOGUERRAZA

BSBA IV INSTRUCTOR