The economic impact of a break in U.S.-Philippines ties
In an unexpected yet not entirely surprising turn of events, Philippines President Rodrigo Duterte continued his anti-U.S. rhetoric in late October by declaring that the island country would be “breaking up with America.”
The U.S. and the Philippines have shared strong relations dating all the way back to the late 19th Century when the U.S. occupied the Philippines as a colony. The relationship between the two nations has even been described as a “special relationship.”
Announced on 17 November, the Philippine economy expanded 7.1% in the third quarter of 2016 despite Duterte's antics since taking over in June. The economy is going strong, for now. In this post we take a look at what is at stake for the Philippine economy if Duterte does indeed move to break off relations with their long-time ally and driver of economic growth, the U.S.
Duterte: "U.S. has lost"
Since taking office in June, President Duterte has shown a propensity for making outlandish statements especially against the U.S. In August he called for an end to joint military drills with the U.S. He also recently had expletive-laden words for both the U.S. Ambassador and President Barrack Obama, himself.
Duterte’s latest comments came during a visit to Beijing in which he declared that the “U.S. has lost” and that he’d look to realigned himself with China stating, “I’ve realigned myself in your ideological flow and maybe I will also go to Russia to talk to Putin and tell him that there are three of us against the world: China, Philippines, and Russia. It's the only way.”
Following the speech, in what appears to be an attempt at damage control, Philippine Trade Minister, Ramon Lopez, stated that the country would not stop trade and investment with the US.
"The statement the President made maintains the relationship with the West. What we are saying is that there will be less dependence just on one side of the world."
The damage, however, was done as the White House began seeking answers shorthly thereafter. U.S. State Department spokesman, John Kirby, said the US would be seeking an explanation, as the U.S. was blindsided by Duterte’s comments.
Kirby described the comments as "yet another string in some pretty strong rhetoric that we think we believe is at odds with the kind of relationship that we have had and continue to have with the Filipino people."
The economic impact: What does breaking up really mean?
Duterte elaborated on the exact kind of separation that he has in mind commenting, “I announce my separation from the United States, both in military, not maybe social, but economics also."
The separation could have implications for the Philippine’s and U.S. economies especially in terms of labor and trade movements.
Remittances are vital to the Philippine economy, accounting for approximately 9.8% of GDP in 2015. They are an important source of income for many Filipino families and thus one of the main drivers of private consumption. One of the main sources of Philippine remittances comes from, of course, the U.S.
Business process outsourcing (BPO) is also very important to the Philippines economy, something U.S. firms have invested heavily in the Philippines. According to CNBC, it accounts for roughly 6 percent of GDP.
For the U.S., the separation could mean restricting entry of U.S. citizens to the Philippines.
As Duterte mentioned during his speech in Beijing, "The Americans can enter the Philippines anytime without visas. Why? Why don't we make it reciprocal?"
Tighter rules on entry to the Philippines for Americans is a possibility. Other possibilities could include, “changes in access to resources, tax credits and preferential custom tariffs on industries controlled by Americans,” according to Ramon Casiple, executive director at Quezon City-based think tank Institute for Political and Electoral Reform, in an interview with CNBC.
The U.S. economic impact would most likely be minimal, in the short term, in comparison to the effect on the Philippines. However, as mentioned previously, U.S. businesses have invested heavily in BPO in the Philippines as well as the electronic sector. The changes to access to resources, tax credits and preferential custom tariffs on U.S. controlled industries could be harmful.
The Pacific Century, a term used to describe how the 21st Century will be dominated, especially economically, by the states in the Asia-Pacific region, is of particular concern for the U.S., especially in the longer-term. A realignment of ties with China is a blow to the U.S., as Washington had made the Philippines a pillar of its foreign policy ambitions to firmly position itself in the Pacific Century.
According to some analysts, the U.S. will find it hard to hold back China's increasing moves into the South and East China seas in the event of a Philippines alignment with China.
According to a report by Max Boot, a senior fellow at the Council of Foreign Relations (CFR), "if the Philippines becomes a Chinese satrapy [...] Washington will find itself hard-pressed to hold the 'first island chain' in the Western Pacific that encompasses the Japanese archipelago, the Ryukyus, Taiwan and the Philippine archipelago.”
According to Boot, 5.3 trillion USD passes through the South China Sea per year, 1.2 trillion of which is U.S. trade.
What about Asia?
Not only could Duterte’s comments threaten U.S.-Philippines ties, but some analysts believe the comments could also disrupt the entire Asia-Pacific region.
China’s territorial claims over waters in the South China Sea have been hotly contested by many ASEAN countries. Indonesia, Malaysia, and Vietnam have been particularly at odds with China over the territorial disputes. If the Philippines indeed shifts its alliance from the U.S. to China, this could give China more leverage to tighten its grip on the already tense region. The major political effect this would have on the region could have spillover effects that negatively impact the economies of the region.
Some analysts believe that Duterte's anti-U.S. rhetoric adds up to nothing but hot air.
"Part of me is thinking that this is all just posturing. After the U.S. elections, you could expect the Duterte administration to come back to Washington [ ... ] Duterte and his minions are far from being the master chess players they think they are, they are just muddling and bumbling through every day," commented Joseph Franco, a research fellow at Singapore's Nanyang Technological University.
The Duterte administration has yet to officially send a notification of termination of relations to Washington, which signals to some that it could be nothing more than a PR stunt in an attempt to make new friends.
More recently, Duterte seems to have changed his tune with regard to the U.S. now that Donald Trump is heading to the Oval Office come January 2017. Nontheless, the potential economic and political impact of a break up between the Philippines and the U.S. could be great. Keep an eye on this spot to see how things unfold.
5-year economic forecasts on 30+ economic indicators for 127 countries & 33 commodities.
Date: November 17, 2016
TagsIran Japan Investment Ukraine Emerging Markets Base Metals Commodities Economic Growth (GDP) Eastern Europe Sub-Saharan Africa TPP Canada France Tunisia Russia precious metals Unemployment rate India Gold Portugal OPEC Latin America China Colombia Vietnam Infographic Asia Housing Market Greece Euro Area Major Economies Agricultural Commodities Germany South Africa Australia Banking Sector Inflation Africa oil prices MENA Exchange Rate Bitcoin Turkey Forex Mexico United Kingdom Commodities Company News European Union Brexit Oil Trade IMF Spain Brazil Cryptocurrency Consensus Forecast Nordic Economies UK United States Italy Venezuela Energy Commodities Argentina Precious Metals Commodities G7 Healthcare USA
18 hours ago
20 hours ago
20 hours ago
Global commodity prices set to increase 6.9% in Q4 2018 from the same period in 2017, mainly due to higher energy a… https://t.co/dVa75QrBr4
21 hours ago
Start getting prepared for iMONEY EXPO 2018! Registration available at https://t.co/K3CyVVbeOv
21 hours ago
- How can Latin America’s business environment benefit from technological change?
- Mexico: A look at the past, present and future as elections yield AMLO victory
- Italy’s New Populist Government and the Eurozone: Prelude to a Crisis?
- Latin America moves toward increased integration as U.S. protectionism grows
- How can Latin America increase productivity without affecting the quality of employment?
- How will Saudi Arabia's economy benefit from lifting the women's driving ban?
- Which countries are the most prepared for the upcoming digital revolution?
- India Under Pressure from the U.S. on Trade Policy
- The Story of Steel
- Latin America is the World Leader in eCommerce Growth Despite Serious Challenges
- What the TPP means for trade in Latin America
- Elections in Russia: Analysis and Implications
- 2018 & 2019 Economic Outlook for the Top Oil Producing Countries
- Nearly a Third of Latin Americans Have No Right to a Pension
- A Look at Healthcare Models Around the World
- The Poorest Countries in the World
- Newly-elected Chilean President Sebastian Piñera faces a myriad of challenges - economic and otherwise
- The Economic Effects of Trade Protectionism
- Regional Disparity: The Dark Side of Inequality in Latin America
- Coal: The story of the world's most abundant fossil fuel
- Venezuela's Electoral Conundrum
- Gold: The Most Precious of Metals (Part 3)
- Trump's 1st Year: 95 Analysts Surveyed on U.S. Economy
- The Latest on China and What's in Store for 2018
- An in-depth look at the Eurozone’s booming economy and the challenges that lurk in the shadows
- China’s growing influence on the Latin American economy
- Top Economics & Finance Blogs of 2018
- How Latin America emerged from recession in 2017
- Is this the beginning of the end for Bitcoin?
- Risks and Opportunities for 2018 - Daniel Lacalle
- Emerging Markets 2018 Economic Outlook
- The role of FDI in Vietnam’s socio-economic development
- Increasing poverty in Latin America takes a breather thanks to improving economic dynamics
- What will be the most miserable economies in 2018?
- The World's Top 10 Largest Economies
- Is Spain doing enough to address its high youth unemployment rate?
- Has Latin America gone far enough in reducing barriers to international trade?
- Commodities Outlook: Oil, Natural Gas, Coal, Lead & Tin
- 21 experts tell us what the future looks like for cryptocurrencies and blockchain
- Turkish lira plummets to all-time low on Erdogan’s monetary feud and tense U.S.-Turkey relations
- Copper: The first metal mastered by man
- The Mercosur-EU Free Trade Agreement: Obstacles & Opportunities
- Nigerian Economy Still Treading Water Thanks to Oil Sector
- Elections in Chile: What the results could mean for the economy
- QE’s Untold Story: A Chart That Fed Correspondents Need To Investigate
- Holland’s fragile one-seat majority government targets economic growth at the expense of fiscal sustainability
- South Africa: Economy at a tipping point?
- Latin American Commodities: What’s behind the increase in demand and prices?
- Is the UK really "shackled to a corpse"?
- Spain-Catalonia: 7 economic experts weigh in on how the situation will affect the outlook
- How well is Spain's labor market doing since the crisis?
- Which countries will have the highest and lowest inflation in 2017?
- How vulnerable is Latin America to economic crises today?
- Iron ore facts and common questions answered
- The bulging economic costs of obesity
- How much investment is needed to salvage Latin America’s crumbling infrastructure?
- A Look at the Potential Impact of Brexit on the Dutch Economy
- Emerging Markets Are Kicking Into Higher Gear In 2017
- Why is foreign direct investment in Latin America falling again?
- Are Central Banks Nationalising the Economy?
- Bounty or burden? The impact of refugees on European economies is far from clear
- What’s the future of U.S.-Latin America trade relations?
- Taxes or cutbacks? Latin America's challenge of sustaining spending without causing debt to skyrocket
- Are uranium prices making a comeback?
- Taxing the Economy: Achieving a Delicate Balance
- How will Latin America’s upcoming lengthy election cycle affect the reform agenda and credit ratings?
- How will emerging market economies perform in 2017?
- Chilean Economy in Focus: Interview with Senior Economist of the Chamber of Commerce of Santiago
- CEOs Rank Top Economies for Growth Opportunities
- The Mobile Ecosystem & Latin America's Economy
- Prospects and Challenges for the Global Economy: Interview with Tim Cooper from BMI Research
- How will the Fed reduce its balance sheet & and how will the ECB end QE? - 19 economic experts weigh in
- Thoughts on "unwinding" QE from Frances Coppola
- The Fed and ECB at a crossroads: Unwinding QE
- Spain: The economy that continues to silence the critics
- Latin America: The Most Unequal Region in the World
- The History of OPEC: Has it been a Success?
- FocusEconomics Announces 2017 Analyst Forecast Awards Winners
- Latin America’s rising unemployment bucks nearly decade long trend
- Escape from the Central Bank Trap by Daniel Lacalle
- China's economic rebalancing act: What to look out for in 2017
- Driving Growth in Latin America: Challenges & Priorities
- Is the Global Economy Rebalancing?
- Commodity exporters face challenging times
- Recent Global Events Facilitate Mercosur-Pacific Alliance
- 23 economic experts weigh in: Why is productivity growth so low?
- Mexico's outlook as Trump nears 100-day mark
- Interview with Oxford Economics Senior Economist on implications of the possible outcomes of the French Presidential Election
- The anxiety of the small saver in a world of negative interest rates
- Brexit negotiations. Between Uncertainty and Urgency
- An Economic History of the EU from El Blog Salmón
- Baby Boomin': Implications of high population growth in Latin America
- Survey of International Economists Predicts a Le Pen Defeat in French Elections, Says Macron has Best Economic Plan
- Spain in a global context: developed economy with some challenges
- How much is crime costing Latin America?
- Predictions & Estimates from Economist Daniel Lacalle
- What economy will the new Dutch government inherit?
- “The data is not a true reflection of reality in India” Interview with Société Générale India Economist
- What are the prospects for Emerging Economies in 2017?
- What to expect in Asia for 2017
- Top Economics & Finance Blogs of 2017
- Latam to Resume Moderate Growth in 2017 but Important Risks Plague Outlook
- 4 Key European Elections That Will Impact the Economy in 2017
- How are security concerns and political chaos affecting Turkey’s economy?
- Global growth to edge up in 2017
- Set to breach targets again? Debt and deficit outlooks for Southern European Eurozone countries in 2016 & 2017
- What does Donald Trump mean for the U.S. economy?
- How will emerging markets perform in 2017?
- The economic impact of a break in U.S.-Philippines ties
- Trump election: Base metals surge due to infrastructure plan
- 5 updates on the Venezuelan economic crisis
- Canada: When your neighbor’s house is on fire…
- Short-term pain before long-term gain? A look at French labor reform and economic growth
- Asia: Unremarkable growth & unfulfilled promises?
- How India's latest monsoon is affecting the economy
- Russian economy update in wake of OPEC deal announcement
- Innovation in Latin America: Potential Goes Untapped Due to Weak Economic Conditions
- The Wisdom of the Crowds and the Consensus Forecast
- There's no end in sight to the Venezuela crisis
- Can the peso predict the U.S. election results?
- A Look at the European Union Political Calendar
- Survey of international economists shows uncertainty surrounding elections damaging U.S. growth prospects
- FocusEconomics partners with leading online statistics provider Statista
- China: Recent postive economic data may be papering over the cracks
- Sub-Saharan Africa's 2016 & 2017 growth rates
- The Italian Dilemma: Weak banks pose risk to already faltering domestic demand
- How much money do migrants from Latin America send home?
- The U.S.' (Not So) Mysterious Case of the Missing Men
- What to expect from the G20 economies by 2020
- The Pain in Spain: Robust GDP growth cannot mask the persistent structural deficit