Trump announced a new trade deal between the United States and the Philippines on Truth Social. This agreement allows the US to send goods to the Philippines with zero tariffs but adds a 19% tariff on all imports from the Philippines. This tariff is slightly lower than the 20% rate on imports from Vietnam. In 2024, the US exported $9.3 billion worth of goods to the Philippines while importing $14.2 billion, creating a trade deficit of about $4.9 billion.

Comparison of Trade Deficits

In comparison, the trade deficit with Vietnam is much larger. The US exported $13.0 billion but imported $136.5 billion from Vietnam, leading to a deficit of $123.5 billion. Trump also mentioned that the US and the Philippines would boost military cooperation as part of this new deal. This announcement presents a chance to short the Philippine Peso. The 19% tariff on imports will significantly limit the flow of dollars into the Philippine economy, which just saw its currency (PHP) drop below 58 to the US dollar, a near two-year low. We plan to use futures markets or options to bet against the currency’s value in the upcoming weeks. We think the iShares MSCI Philippines ETF (EPHE) is a good candidate for buying put options. The largest exports from the Philippines to the US are electronic products, especially semiconductors, accounting for over $8 billion each year and making up most of their trade with the US. A tariff of this size could severely impact the profits of the biggest companies on the Philippine Stock Exchange Index (PSEi).

Historical Context of Tariffs

Historically, tariffs, like those imposed during the 2018-2019 U.S.-China trade conflict, caused significant market volatility. We see this new deal as a sign of a more aggressive trade policy that could lead to greater uncertainty. As a result, we are considering long positions in volatility through VIX futures or calls to protect against potential market disruptions. For US equities, we’ll identify winners and losers from this deal. US agricultural exporters, especially for soybeans and wheat, will benefit from the zero-tariff policy. On the other hand, we will pinpoint US apparel and electronics brands that rely heavily on manufacturing in the Philippines, as they will face higher supply chain costs. Create your live VT Markets account and start trading now.

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