THE PHILIPPINES is poised to attract more foreign direct investments (FDI) as it is seen as an emerging “friendshoring” destination for the US and as secondary hub for China-based companies, HSBC Global Research said.
“Though currently paused, we think low reciprocal tariffs from the US and amicable Philippine-US relations offer global investors a potential opportunity to diversify,” it said in a report.
“We think the Philippines may be a budding friendshoring destination for the US as well as a destination for the China+1+1 strategy for investors elsewhere. Time to turn the tides,” it added.
US President Donald J. Trump announced higher reciprocal tariffs on most of the country’s trading partners last month, with the Philippines facing a 17% rate, the second-lowest tariff in Southeast Asia.
The reciprocal tariffs have been paused for 90 days until July as countries negotiate lower rates with the US.
If the Philippines secures a lower reciprocal tariff from the US, HSBC said exports to the US would likely rise over time.
“We think there is scope to accommodate more, though the US is already the second-largest trading partner and export market of electronics for the country.”
In 2024, the US was the country’s top export market, receiving $12.12 billion worth of Philippine goods.
The Philippines’ top exports to the US are semiconductors, electronic integrated circuits, and insulated wire and other insulated electric conductors.
“In terms of trade, the Philippines has the potential to increase its market share in the US. As of now, it is behind its peers, but the current situation poses an opportunity, particularly if the ‘China+1+1’ strategy takes off.”
The China+1+1 strategy refers to China-based companies diversifying their production operations to include two additional countries.
HSBC said the country is in a “unique position” to maximize opportunities.
“For one, it is a low-risk option for diversification as it may have the most amicable relationship with the US among ASEAN (Association of Southeast Asian Nations) countries.”
Changing global supply chains also opens up doors to the potential for nearshoring and reshoring, HSBC said.
“Amidst this, we believe the Philippines is poised to present itself as a friendshoring destination for the US.”
“Potentially lower tariffs, an attractive demographic, ready infrastructure for the industry, and a friendlier relationship with the US should give all the right signals to global investors.”
The boost from investment will help the country “anchor its position in the global tech supply chain, while gradually shifting to more high-valued exports.”
“It would also nudge the government to ramp up infrastructure development and may even have a crowding-in effect on both public and private investment,” it added.
However, it noted the complicated and interlinked nature of global tech supply chains.
“The 90-day tariff pause will end soon, but the outcome of it remains uncertain. There is also a risk of higher tariffs on semiconductor imports to the US.”
“This has the potential to hit the entire tech supply chain of the region hard. The archipelago is not fully shielded from the broader cascading effect of tariffs. However, we see opportunities and think all eyes will be on how the Philippines can maximize them,” it added.
HSBC had noted the Philippines is a critical part of the region’s tech supply chain with its expertise in assembly, testing and packaging of semiconductor chips, but has failed to compete with its neighbors.
“The production of semiconductors requires a highly skilled workforce, especially to move up the value chain,” it added.
The report also cited challenges preventing electronics production from flourishing in the Philippines, such as the previous policy focus of the government on services instead of manufacturing; lack of a highly skilled workforce; high electricity costs; and regulatory bottlenecks, among others.
However, it noted that the Philippines has been making “good progress” in deploying structural reforms to support the semiconductor industry to address ease of doing business and attract foreign investments, among others. — Luisa Maria Jacinta C. Jocson
