Export Performance in the Context of Global Trade Tensions1
Unlike many Asian countries, the Philippines’ exports of goods have remained stable through the ongoing period of global trade tensions. Its low participation in global trade as well as in global value chains relative-to-peers seems to explain why the Philippines has not yet been negatively impacted by the trade tensions. On the other hand, despite its close trade ties with the United States, the Philippines has not benefitted much from trade diversion originated from the U.S.-China bilateral tariffs, unlike Vietnam and Mexico.
1. The stable evolution of the Philippines’ exports of goods in a context of global trade tensions is puzzling. On the one side, unlike most Asian economies, the Philippines has not experienced a fall in its total exports. On the other hand, the Philippines has not benefited much from trade diversion created after the U.S.-China trade tensions, even though the U.S. and China are major trading partners. The purpose of this analysis is to shine light onto these two aspects, through an empirical strategy that combines both a high-level summary of key trade statistics—capturing comparative advantages and global value chain integration—and the use of disaggregated 6-digit trade data to distinguish between the performance of good categories on the U.S.-China tariff lists and good categories not on the tariff lists, as well as across countries.
Export of Goods
Sources: Haver Analytics; and IMF staff estimates.
2. In many goods categories affected by the U.S.-China trade tensions, that are exported by the Philippines, Vietnam, and Mexico, both Vietnam and Mexico have been able to substantially increase their exports, while the Philippines has not benefited as much. The comparative advantage of the Philippines in terms of exports resides in high tech industries, which constitutes its main exports (especially to the United States). The Philippines’ exports to China are mostly concentrated on commodities, with a very small share of them touched by the Chinese tariffs imposed on U.S. producers. However, about ¼ of the goods exported to the U.S. by Philippine producers were included in the U.S. tariffs on Chinese producers (this share was about 1/3 and 2/3 percent for Vietnamese and Mexican producers, respectively). This different coverage explains part of the aggregated evolution differences in exports, but not all because Philippines was not able to scale up its exports to the U.S. as much as Vietnam and Mexico in many specific common products. Although beyond the reach of our analysis, the poor performance in this area might be related to the fact that despite recent progress, the ease of doing business in the Philippines remains difficult, mainly due to relatively high barriers to FDI and international trade hampering fuller market competition. Removing these structural impediments would be key to taking advantage of the realignment of Asian value chains amid the ongoing U.S.-China trade tensions, as well as Philippines’ young, educated, and growing population.
B. Recent Evolution
3. Philippines’ exports have slightly increased in dollar terms since 2017, but they have remained broadly stable in GDP terms. Exports of services—which are about half of goods exports—increased by 7.6 percent or 0.2 percent of GDP, while exports of goods increased by 0.9 percent or 1 percent of GDP during 2018. The increase in electronics exports was offset by the decrease in agro-based products, mineral products, chemicals, and wood manufactures exports (Table 1). In the first half of 2019, exports of goods slightly decreased by US$283 million (or almost 0.1 percent of 2018 GDP) compared to the same period in the previous year.
|Exports (percent of GDP)||21.9||20.9||Imports (in percent of GDP)||30.6||34.1|
|Exports (billions of USS)||63.7||69.3||Imports (in billions of USS)||96.1||112.3|
|Exports (percent of GDP)||11.1||11.3||Imports (in percent of GDP)||3.3||3.2|
|Exports (billions of USS)||34.3||37.5||Imports (in billions of USS)||26.1||27.0|
|Main partners (in percent of total)|
|Hong Kong SAR||13.1||13.3||Japan||11.4||9.6|
|European Union||14.0||12.3||European Union||6.9||7.6|
|Taiwan POC||3.6||3.6||Taiwan POC||5.3||4.9|
|Trade by commodity (in percent of total|
|Main exports||2017||2018||Main imports||2017||2018|
|Mach./transport equip.||7.5||7.5||Manufactured goods||12.6||13.2|
|Agro-based products||7.2||6.3||Mineral fuels||11.2||11.3|
|Mineral products||6.2||5.7||Elec. equip. raw materials||3.3||9.2|
|Wood manufactures||1.3||0.5||Durable consumer goods||9.3||3.3|
|Main services exports||2017||2018||Main services imports||2017||2018|
|Other business services||44.7||44.4||Travel||45.3||44.6|
|Telecom, computer & inform||16.2||15.9||Other business services||19.1||17.2|
|Manufacturing services||9.9||10.7||Insurance & pension||5.7||5.7|Exports of Goods
Sources CEIC Data Co Ltd; and IMF staff estimates
4. Philippines main trade partners include the United States and China. The United States is the main destination market for Philippines’ exports, absorbing 15.3 percent of total exports. United States exports to Philippines are a bit lower, so the Philippines has a trade surplus in goods of about US$0.2 billion. China ranked fifth among Philippines’ main export destinations after the U.S., Japan, Hong Kong SAR, and EU. Exports of goods to China and the United States increased, while exports to Japan, EU, and Korea decreased in 2018. In the case of China, Philippines has a trade deficit of around US$1.1 billion. Exports to China comprise of 12.7 percent of the total (Figure 1).
Figure 1.Trade with the United States and China
5. The Philippines does not appear to have benefitted much from the U.S.-China trade tensions, but it has performed better than many of its peers at the aggregate level. Unlike other Asian economies, the main export destination of the Philippines is the United States, reflecting a historically close relationship between these two countries. However, the Philippines has not seen a large increase in exports toward the United States. In the first half of 2019 exports to the U.S. and China slightly increased by US$0.6 billion and US$0.5 billion. Meanwhile, Mexico and Vietnam seem to have benefited from the trade war, with exports to the United States increasing by US$9.7 billion and US$5.9 billion, respectively (Figure 2). On the other hand, the Philippines’ exports to China have not declined, as in the case for Korea, Taiwan Province of China, and Thailand, where such declines were larger than the increase in their exports to the United States (Figure 2). During 2014–18, Vietnam and Mexico have exported more products that have been listed in the 2018 U.S. tariff hikes than the Philippines. While Vietnam and Mexico exported 31 percent and 61 percent of products listed in the U.S. tariff hike to China, Philippines’ share was about 24 percent (Table 2).
Figure 2.Change in Exports of Goods to China and the United States
|US tariff hikes||Products in the list||Philippines||Vietnam||Mexico|
C. Export Profile
6. The Philippines’ shares of export global market as well as its export diversification lag other ASEAN countries. Although the government has recently ramped up efforts to strengthen exports through existing and prospective trading agreements in the context of the Philippine Export Development Plan 2018–22, progress has been partial. The share of Philippines’ goods exports has increased since 2013, but it is still below the 2000 level and it is the lowest among ASEAN-4 countries. Similarly, its export sophistication index—which measures productivity levels associated with country exports—has also improved, but it lags behind some other ASEAN-4 countries. Also, in terms of diversity of destinations and products, the Philippines’ exports are more concentrated compared to other Asian emerging markets (Figure 3). Theoretically, higher concentration could be consistent with higher competitive pressure and possibly also greater innovation (Autor and others, 2017 as cited in Piazza, 2018).
Figure 3.Global Market Share and Export Diversification in the Philippines
7. The comparative advantages of the Philippines in terms of exports resides in high tech industries, which constitutes its main exports. The Philippines has a revealed comparative advantage in exporting from high technology industries. They constitute more than 50 percent of total goods exports, and they were affected during the global financial crisis. The large drop in 2009–10 was caused by the significant decrease in Philippines exports of electronic integrated circuits semiconductor devices, storage units, and digital automatic data processing.2 While high tech industries contribute 52 percent of its total exports, medium-high technology products cover about another 20 percent. The economic complexity index (ECI) suggests that the Philippines is capable of producing a diverse range of goods, which are less commonly produced by other countries. A high ECI is usually associated with high per capita income. Despite having a relatively high ECI, the Philippines per capita income is lower than other countries with similar ECI levels, such as Indonesia (Figure 4).
Figure 4.Comparative Advantage
8. Philippines’ participation in global value chains (GVC) has declined overtime, and it is below many ASEAN peers. Backward participation (foreign value added in domestic exports) has declined overtime, while forward participation (domestically produced intermediate goods to be used in third countries) has remained broadly stable. The benefits from GVC participation are often stressed in the literature. For example, participation in GVC could enhance productivity in tradable sectors through knowledge spillovers, technology transfers, and cost savings (Cheng and others, 2015). Likewise, Aslam and others, 2018, showed that an increase in GVC participation leads to higher employment growth for the average firms. The larger share of workers flowing from firms that do not innovate to high-tech firms is another way GVC participation boosts economies’ technological intensity. On the other hand, an increased participation in GVC may also create additional channels of contagion and/or spillovers from market financial stress. The Philippines’ low participation in global trade as well as in global value chains relative-to-peers seems to explain why the Philippines has not yet been negatively impacted by the trade tensions.
Figure 5.Participation in Global Value Chains
D. U.S.-China Trade Tensions and Their Impact on Philippines’ Exports
9. Even though the U.S.-China bilateral tariff hikes have decreased their bilateral trade, there is not much evidence that Philippines’ exports to those two destinations have benefitted, even when looking at the specific goods affected by the tariffs. United States imports from China have fallen in all the three groups of goods once U.S. tariff hikes were imposed ($34 billion, $16 billion, and $200 billion lists). Meanwhile, U.S. exports to China have also declined after China imposed retaliatory tariffs ($34 billion, $16 billion, and $60 billion lists, see Figure 6). Despite its trade ties to both the U.S. and China, there is no aggregate evidence that the Philippines has largely benefitted from the U.S. tariff sanctions on China as well as from China’s retaliatory tariffs on any of the targeted groups. Eugster and others (2019) observed that increases in bilateral tariffs will hurt output, employment, and productivity, not only in the affected economies, but also in bystanders up and down value chains. While some countries may benefit from trade diversion, higher tariffs would leave the global economy worse off.
Figure 6.The Impact of United States and China Tariff
10. At a good specific level, although tariff-affected products display relatively more positive increases, only a few specific Philippines’ exports to the U.S. or China have significantly increased in dollar or percentage terms. Even though specific Philippines’ export of goods (at 6-digit Harmonized-System (HS) classification) to the U.S. in the tariff-affected lists increased relatively more than in the non-affected tariff goods (see Figure 7, where above US$5 million are displayed), only a few goods significantly increased in dollar or percentage terms. Parts of electrical goods (HS-854390) increased by 210 percent or US$434 million in the last two quarters (2018:Q4 and 2019:Q1) compared to the same period last year. Over the same period, electrical static converter (HS-850440), parts of airplanes and helicopters (HS-880330), handbags (HS-420229) increased more than US$50 million. While data processing machines (HS-847180), instruments and apparatus for measuring or checking semiconductor devices (HS-903082), and lighting sets (HS-940530) grew more than 5,000 percent, the growth values only ranging from US$8 million to US$11 million. Goods not in the list such as plastics articles (HS-392490) and data processing machines (HS-847141) increased by more than 6,000 percent or by around US$40 million.
Figure 7.Exports by the Philippines to the United States Figure 8.Exports by the Philippines to China
11. Only a few goods that Philippines exports to China have benefited from the retaliation tariffs on U.S. goods. Only a few Philippine export goods are in the China retaliation tariff lists against US producers. Moreover, only two goods, electrical apparatus HS-853690 and copper HS-740400, reach values above US$5 million. Three goods—electrical apparatus HS-853690, fish preparations HS-160414, and glass articles HS-702000 decreased in the last two quarters. Three other goods—copper HS-740400, iron or steel HS-732690, and plastic HS-391590 increased by 13 percent to 94 percent or between US$0.4 million to US$3 million during the period. There were additional six goods that Philippines exported to China in the last two quarters (2018:Q4 and 2019:Q1) but not in the same period last year. The total value of these goods was below US$5 million. Export goods not in the retaliation list with value over US$5 million seemed to improve in general. Data processing storage units (HS-847170), electrical machine and apparatus (HS-854390) increased by US$75 million and US$132 million; instruments for measuring liquids or gases (HS-902690), locks (HS-830140), radio navigational apparatus (HS-852691), and instrument to measure semiconductor devices (HS-903082) increased by 300 percent or more.
E. Comparing the Philippines’ 2019 Exports vis-à-vis Vietnam, Mexico, and Bangladesh: A 6-Digit Trade Data Analysis
12. A simple way to benchmark the performance of the Philippine exports is to compare them at a disaggregate level to the evolution of similar Vietnamese, Mexican, and Bangladesh exports. This is especially feasible if we focus on their exports to the United States using U.S. Department of Commerce trade import data, which is available at HS-6 digit and with a monthly frequency that allow us to focus on the first half of 2019. The disadvantage is that we cannot cover exports to China, but this is not a major constraint to the analysis given the results presented in the previous section.
13. The relatively better performance of Vietnam exports to the US vis-à-vis similar Philippine exports is clearly visible in most goods categories affected by the U.S.-China trade tensions. Although there are several goods categories where either the Philippines or Vietnam do not simultaneously export to the United States (see orange triangles in the top charts of Figure 9), there are many more goods where both countries compete in their exports to the U.S. (see other data levels which are classified following their degree of technology as presented in the analysis of comparative advantages in Figure 4). The scatter plots show that Philippines has performed much better than Vietnam in one specific high-technology product, “Digital Processing Units.”3 The Philippines’ export in this category increased by almost US$450 million in 2019:H1 compared to 2018:H1, a much larger amount that Vietnam experienced on the same product (about US$25 million). Nonetheless, this high-tech product seems to be the exception rather than the rule. Most goods are placed way below a 45-degree line in both top panels of Figure 9 (The right panel offers a close-up of the left-hand side panel, focusing only on goods that experimented a less than US$60 million increase).4
Figure 9.Changes in Export to the United States for HS 6-digit Products in the Tariff Lists
14. The Philippines exports also performed worse than many similar Mexican exports, but this does not seem the case vis-à-vis Bangladesh exports since they mostly do not cover the same goods. Even though the overlap between Philippine and Mexican exports on the same goods is much lower given the large quantity of goods exported by Mexico but not Philippines to the United States (see orange triangles in the middle panels of Figure 9), there are still many high-tech and medium-tech goods where Mexico performed much better during 2019:H1 than the Philippines. The comparison with Bangladesh is a bit different. The Philippines exports much more goods included in the U.S. tariffs list against Chinese producers than Bangladesh (orange triangles are now in the vertical axis in the bottom panels of Figure 9). Almost all the goods where Bangladesh displayed much higher dollar increments during 2019:H1 were low-tech textile related products.
15. In sum, the disaggregated trade data evidence suggests that the Philippines was not able to scale up its exports to the United States as much as Vietnam and Mexico in many high- to medium-tech goods included in the U.S. tariff lists. Results are similar but do not display as large variations in most goods as shown in Figure 10. Although beyond the reach of our analysis, the evidence of the Philippines’ poor performance to scale up production could be related to the fact that despite recent progress, the ease of doing business in the Philippines remains difficult, mainly due to relatively high barriers to FDI and international trade hampering fuller market competition (see Figure 11).5 Removing these structural impediments would be key to taking advantage of the realignment of Asian value chains amid the ongoing U.S.-China trade tensions, as well as Philippines’ young, educated, and growing population.
Figure 10.Change in Export to the United States for HS 6-digit Products Not in the Tariff Lists Figure 11.Business Environment
Diversification is measured based on Herfindahl-Hirschman Index (HHI). The HHI is calculated as the sum of squared shares of each product in total export for export product diversification and the sum of squared shares of each export destination in total export for market diversification. If N denotes the number of export products or export destinations and s denotes the market share, HHI of a country is calculated as
The HHI values range between 1/N to 1 with smaller index indicates more diversified or less concentrated market. Diversifications of export product and destination are analyzed for Philippines and its comparators. Product diversifications are calculated based on SITC Rev. 3 at 4-digit product classification and for destination HHIs are calculated using Direction of Trade Statistics data.
Revealed comparative advantage (RCA) is measured according to the RCA index introduced by Balassa (1965) that compares the share of a group of products in a country’s total exports with the share of that group of products in total world exports. RCA > 1 indicates that a country has revealed comparative advantage in exporting that group of products. Likewise, RCA < 1 indicates that a country has revealed comparative disadvantage.
The RCA index for country c in exports of product p is calculated using the following formula:
Where Xcp represents the exports of product p by country c. The numerator refers to the share of product p in the total exports of county c and the denominator refers to the share of product p in total world exports.
Hatzichronoglu (1997) and OECD (2003) developed export products classification based on level of skill and technology intensity. This classification has been modified to make it more relevant to Indonesia’s export structure and data availability. Instead of ISIC Rev 3 product classification, we use SITC-Rev 3 at the 4 digit. Export products are classified into five categories: High, Medium-high, Medium-low, Low Technology and Mineral Fuels. Mineral Fuels group is added, as oil and gas are the main export products in Indonesia.
Export sophistication is constructed using Hausmann, Hwang and Rodrik (2007) framework. This measure aims to capture the productivity level associated with a country’s exports. The evolution of sophistication displays trend in high-growth, rich countries versus slow-growing, poor economies. For each product, an associated income/productivity level (PRODY) is generated by taking a weighted average of the per capita GDP, where the weights reflect the RCA of a country in that product, p denotes export product or category, t time, c country, and Y per capita income
Then the income/productivity level that corresponds to a country’s export basket (EXPY) is constructed with the weights corresponding to the shares of these products in total exports.
Economic complexity is a concept developed by Hidalgo and Hausmann (2009) to capture the amount of productive knowledge that is embedded in a country’s products. The economic complexity index (ECI) encompasses two aspects: diversity—the number of distinct products that a country makes; and ubiquity—the number of countries that also make the same product. A country that is able to produce and export a wide variety of products (high diversity) and those that are less ubiquitous are ranked high on ECI. ECI ranks how diversified and complex a country’s export basket is. We use ECI data calculated based on Simoes and Hidalgo (2011).
Global value chains (GVCs) are the position and participation of countries in global production. The GVC participation index indicates the extent to which a country is involved in a vertically fragmented production process (in relative and absolute terms). It distinguishes the use of foreign inputs in exports or backward participation and the use of domestic intermediates in third country exports or forward participation (De Backer and Miroudot, 2013). The OECD, in cooperation with the World Trade Organization (WTO), has developed estimates of trade flows in value-added terms. Inter-country input-output tables and a full matrix of bilateral trade flows are used to derive data on the value added by each country in the value chain.
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AslamA.F.CoelliJ.EugsterG.HoFJaumotteC. O.Buitron andR.Piazza2018 “Is Productivity Growth Shared in Globalized Economy?” April 2018 World Economic Outlook World Economic and Financial Surveys (Washington: International Monetary Fund). Available via the Internet: https://www.imf.org/en/Publications/WEO/Issues/2018/03/20/world-economic-outlook-april-2018#Chapter 4.
ChengK.S.RehmanD.Seneviratne andS.Zhang2015 “Reaping the Benefits from Global Value Chains” IMF Working Paper No. 15/204 (Washington: International Monetary Fund).
EugsterJ.F.JaumotteM.MacDonaldR.Piazza2019 “The Drivers of Bilateral Trade and The Spillovers from Tariffs” April 2019 World Economic Outlook World Economic and Financial Surveys (Washington: International Monetary Fund). Available via the Internet: https://www.imf.org/en/Publications/WEO/Issues/2019/03/28/world-economic-outlook-april-2019#Chapter4
PiazzaR2018 “Relationship between Competition, Concentration, and Innovation.” Box 4.4. in Chapter 4 “Is Productivity Growth Shared in Globalized Economy?” April 2018 World Economic Outlook World Economic and Financial Surveys (Washington: International Monetary Fund). Available via the Internet: https://www.imf.org/en/Publications/WEO/Issues/2018/03/20/world-economic-outlook-april-2018#Chapter4
Prepared by Eugenio Cerutti and Agnes Isnawangsih (APD).
Revealed comparative advantage (RCA) index >1 indicates that a country has revealed comparative advantage in exporting that group of products. RCA index compares the share of a group of products in a country’s total exports with share of that group of products in total world exports (see Appendix I for further details).
Although the HS 6-digit classification does not match, this is the same item that we found classified as “Part of electrical goods” in the Philippines export data (see Figure 7) given the similar magnitudes.
Plotting the evolution of Philippines’ exports to the US together with the Chinese exports to the US also show that Philippines’ additional exports to the US only represented a fraction of the decrease of Chinese exports.
The Philippines improved its ranking in the 2020 World Bank Doing Business report. While it holds the 124th position last year, it is now ranked as the 95th country out of 190 economies. The government is continuing its efforts to further improve the business environment for investment and strengthen the trade sector through different strategies (e.g., fully operationalizing the National Single Window/TradeNet System and its integration into the ASEAN Single Window; relaxing restriction on foreign participation in more areas of investment; the review of existing FX policies governing trade and nontrade current account transactions, etc.).