The Philippines in the US-China Geopolitical Crossfire: Assessing Trade, Security, and Investment Risks

The Philippines has become a focal point in the U.S.-China geopolitical contest, with its recent trade concessions to Washington reshaping its economic trajectory. The July 2025 U.S.-Philippines Trade Agreement—a cornerstone of Donald Trump's “Liberation Day” tariff strategy—grants U.S. exports zero-tariff access to the Philippines while imposing a 19% tariff on Philippine goods. This asymmetry reflects a broader strategic recalibration: the Philippines is aligning itself with U.S. security and economic priorities to mitigate risks from China, its largest trading partner. For investors, this shift creates both opportunities and vulnerabilities, demanding a nuanced understanding of industrial policy, trade dynamics, and geopolitical risks.

Strategic Diversification: A Balancing Act

The Philippines' industrial policy in 2025 is a blend of pragmatism and ambition. The CREATE MORE Act, which offers tax holidays and streamlined approvals for exporters, has lured U.S. semiconductor firms like Intel and Texas Instruments to shift production from China. These companies capitalize on the Philippines' English-speaking workforce and infrastructure investments, such as the Luzon Economic Corridor, a U.S.-Japan-backed project to build ports, rail, and clean energy for supply chain resilience. The U.S. CHIPS Act further bolsters this effort, with $20 million allocated to support semiconductor manufacturing in the Philippines.

However, the trade agreement's 19% tariff on Philippine exports—particularly in electronics, agriculture, and garments—poses a challenge. The Philippines' electronics sector, which accounts for 61% of its total exports, now faces a competitive disadvantage against rivals like Vietnam and Malaysia. While the WTO's Information Technology Agreement (ITA) shields high-tech goods from tariffs, downstream assembly work remains unprofitable without upstream manufacturing capabilities. This dynamic risks entrenching the Philippines as a low-value “assembly hub,” a role it has held since the 1980s.

Sector-Specific Impacts: Winners and Losers

Semiconductors and Tech Manufacturing
The Philippines is emerging as a nearshoring hotspot for U.S. firms seeking to diversify away from China. Tax incentives and U.S. infrastructure investments have created a favorable environment for semiconductor companies. However, the sector's long-term success hinges on vertical integration. Without government support for R&D or upstream manufacturing, the Philippines may remain dependent on low-margin assembly work. Investors should monitor the performance of local firms like SM Investments and Ayala Land, which are expanding industrial zones to accommodate U.S. tech firms.

Agriculture and Food Security
The zero-tariff policy on U.S. agricultural exports has opened the door for American agribusinesses like Cargill and Tyson Foods to flood the Philippine market. While this benefits U.S. producers, it threatens Philippine farmers in banana and pineapple sectors, which struggle to compete with Latin American suppliers. The government's push for food security, including investments in vertical farming and climate-resilient crops, is critical. However, structural challenges—such as land tenure issues and fragmented supply chains—remain.

Defense and Strategic Infrastructure
Military cooperation with the U.S. has intensified, with the Philippines expanding U.S. military access to nine bases and hosting advanced systems like Typhoon missiles. This alignment is expected to drive infrastructure investments in defense logistics and cybersecurity. U.S. defense contractors like Lockheed Martin and Raytheon are likely beneficiaries, while Philippine firms like United Defense Manufacturing Corporation (UDMC) could see increased defense contracts. However, UDMC's controversial ties to Myanmar raise ethical concerns for investors.

Risks and Opportunities in a Geopolitical Crossfire

The Philippines' strategic pivot to the U.S. reduces short-term geopolitical risks but introduces new vulnerabilities. The trade agreement's constitutionality is contested, as it bypassed legislative approval, and its long-term economic impact remains uncertain. Additionally, U.S. pressure to reduce China ties may strain relations with the Philippines' largest trade partner, affecting tourism, infrastructure projects, and remittances.

For investors, the key is to balance exposure to sectors aligned with U.S. priorities—semiconductors, renewable energy, and defense—with caution in areas where the Philippines faces structural weaknesses. The CREATE MORE Act's tax incentives and U.S. infrastructure investments make the Philippines an attractive destination for friendshoring, but investors must weigh these benefits against the risks of overreliance on the U.S. market.

Investment Advice: Navigating the New Normal

1. Semiconductors and Tech Manufacturing: Prioritize firms with U.S. partnerships and access to the Luzon Economic Corridor. Monitor tax incentives and infrastructure spending.
2. Renewable Energy: The Philippines' renewable energy sector, supported by U.S. firms like BrightNight Power, offers long-term growth as the country decarbonizes.
3. Defense and Security: Invest in Philippine firms with U.S. defense contracts, but conduct due diligence on ethical risks.
4. Agriculture and Food Processing: Avoid overexposure to export-dependent agribusinesses. Instead, target firms investing in domestic food security and climate adaptation.

In conclusion, the Philippines' role in the U.S.-China geopolitical contest presents a complex landscape for investors. While strategic diversification and U.S. alignment offer opportunities in semiconductors, defense, and renewable energy, structural risks in agriculture and electronics require careful management. The key to long-term success lies in balancing geopolitical strategy with economic resilience—a challenge the Philippines is only beginning to navigate.