Trade War: A boon for PH electronics?

In a 2016 report by the International Trade Administration, China was the top export destination for semiconductors, while the U.S. held the majority of production at almost 50 percent. The report identified the market share of manufacturers and importersin the global semiconductor industry.

The ongoing Sino-U.S. trade war is already disrupting the supply chain to the Mainland. Chinese smartphone manufacturer ZTE was among the casualties after being banned from purchasing Qualcomm chips due to what the U.S. deemed as trade violations. Possible future trade barriers may worsen the outlook for China’s information technology and manufacturing sectors that rely heavily on imports.

On the other hand, the Philippines continues to be a ready source of electronic parts for the expanding Asian market, with semiconductors accounting for 39 percent of its total exports in mid-2016 according to the Philippine Statistical Authority (PSA). According to Ernesto Pernia, Director-General of the National Economic and Development Authority, electronic products accounted for about 50 percent of the country’s exports to China in 2017.

“The Philippines has been a valuable trade partner of China, and the warmer relations are opening many doors for both countries to contribute to each other’s economic development,” Deng Jun, Country Head of Bank of China Manila, said. “By nurturing this partnership, local enterprises can further expand their market as part of the global value chain.”

Creating a more favorable environment for trade may encourage Chinese importers to do more business with local chip manufacturers. One key to realizing this is by settling cross-border trade using the Chinese currency—the renminbi (RMB).

Also known as Chinese yuan, RMB has grown in strength as foreign exchange currency thanks to internationalization efforts by China and its partner offshore banks. When used to settle cross-border deals with the Mainland, traders can enjoy several benefits.

First, trade parties won’t have to bridge transactions using the U.S. dollar. The majority of cross-border deals in the meantime are made in USD. This doubles the foreign exchange process from peso to dollar, and then from dollar to RMB. In turn, conversion fees double. Converting currencies twice also increases hedging costs to mitigate foreign exchange risks.“With direct PHP-RMB conversion, trading partners can save from one to two percent on foreign exchange fees,” Deng said. “The shared savings may help grow business between parties, opening key financial and relationship advantages.”

These benefits will help establish the Philippines as an ideal alternative source of semiconductors once the trade war makes it too expensive for China to purchase from the U.S.