Why The Philippines Has a Big Trade Deficit

Summary

The Philippines faced a significant trade deficit of $54 billion in 2022, ranking fourth globally behind Pakistan, India, and the United States. This video explores the reasons behind the deficit, including corruption, political instability, and the country's large population. It highlights the importance of international trade and the Philippines' reliance on imports, with exports at $57.4 billion and imports at $126.8 billion. Factors contributing to the deficit are discussed, such as weak manufacturing and agricultural industries, and the impact of commodity price fluctuations. The video also debates whether the trade deficit is detrimental, considering the country's service trade surplus and remittances from overseas workers.

Takeaways

• 📉 The Philippines experienced one of the world's worst trade deficits in 2022, with a staggering $54 billion deficit.
• 🌍 In 2021, the country had the fourth largest trade deficit globally, following Pakistan, India, and the United States.
• 🔍 The reasons behind the trade deficit are multifaceted, including corruption, lack of industrialization, and poor agricultural productivity.
• 🏭 The Philippines lacks a strong manufacturing base, unlike neighboring countries like Vietnam and Thailand, which report trade surpluses.
• 🌾 The country's agricultural sector is inefficient, with a low cereal yield compared to other Southeast Asian economies.
• 📈 The trade deficit is influenced by factors such as natural disasters, political instability, and fluctuations in commodity prices.
• 💡 Despite the trade deficit, the Philippines has a surplus in service trade, largely due to the Business Process Outsourcing sector.
• 🌐 The country's reliance on imported goods is necessary for economic growth but contributes to the trade deficit.
• 💰 The Philippines compensates for the trade deficit through remittances from overseas Filipino workers and other income sources.
• 🤔 The impact of the trade deficit on the overall economy is debated, with arguments on both sides of whether it is beneficial or detrimental.

Q & A

What was the trade deficit of the Philippines in 2022?

The Philippines incurred a trade deficit of $54 billion US dollars in 2022.

What was the Philippines' ranking in terms of trade deficit in 2021 according to the World Bank?

In 2021, the Philippines had the fourth largest trade deficit in the world, just behind Pakistan, India, and the United States.

What is international trade and why is it important for the Philippines?

International trade refers to the exchange of goods and services between different countries. It allows the citizens of the Philippines to access new goods and services at cheaper prices, which helps improve the economy and the citizens' standard of living.

How does the trade deficit impact the Philippine economy?

The trade deficit indicates that the Philippines imports more than it exports, which can lead to an outflow of money. However, it also allows the country to access necessary goods and services that support economic growth and development.

What are the total goods exports and imports of the Philippines in 2022?

In 2022, the total goods exports of the Philippines reached 57.4 billion dollars, while imports reached over 126.8 billion dollars.

What is one of the main reasons suggested for the Philippines' large trade deficit?

One of the main reasons suggested for the Philippines' large trade deficit is the country's weak manufacturing industry, which is not able to produce enough goods for export.

How do Vietnam and Thailand compare to the Philippines in terms of trade?

Vietnam and Thailand are in a better position when it comes to trade as they both report surpluses, meaning they export more than they import, unlike the Philippines.

What is the state of the agricultural sector in the Philippines and how does it contribute to the trade deficit?

The agricultural sector in the Philippines is inefficient, with a cereal yield of about 3.77 tons per hectare, which is lower than neighboring countries. This poor productivity leads to the country importing more agricultural products, contributing to the trade deficit.

How does the Philippines' reliance on imports of oil and machinery affect its trade deficit?

The Philippines' reliance on imports of oil and machinery, which are necessary for various industries, contributes to the trade deficit as these imports increase the value of goods imported.

What is the role of the Business Process Outsourcing (BPO) sector in the Philippines' service trade?

The BPO sector in the Philippines has recorded a surplus of about 15.6 billion US dollars in 2022, contributing positively to the country's balance of payments and offsetting some of the trade deficit.

What is the impact of overseas Filipino workers on the Philippines' balance of payments?

Overseas Filipino workers, through remittances, contribute to the balance of payments by sending money back to the Philippines, which helps to offset the trade deficit.

Is the Philippines' trade deficit considered good or bad for its overall economy, and why?

The trade deficit is debated as to whether it is good or bad for the overall economy. While it indicates an outflow of money due to more imports than exports, it also signifies the importation of goods necessary for economic growth. Additionally, other factors like service trade surpluses and remittances from overseas workers help balance the payments.

Outlines

00:00

🌍 The Philippines' Struggle with International Trade Deficit

The Philippines faced one of the world's worst trade deficits in 2022, with a staggering $54 billion deficit. This issue has persisted for decades, and the country ranked fourth globally in trade deficit in 2021. The video raises the question of why the Philippines is struggling with international trade, suggesting potential reasons such as corruption, political instability, and a large population necessitating imports. The script explains the basics of international trade, highlighting its importance for both domestic and global economies. It also points out the Philippines' unfavorable position due to higher imports than exports, leading to a significant trade deficit. The country's trade deficit is further discussed in relation to corruption, natural disasters, and the need for industrialization to improve its export capabilities.

05:02

🌾 Agricultural and Manufacturing Challenges in the Philippines

The video script delves into the agricultural and manufacturing sectors as key contributors to the Philippines' trade deficit. It compares the country's cereal yield, which is inefficient at 3.77 tons per hectare, with that of Vietnam and Indonesia, indicating poor agricultural productivity. This inefficiency forces the Philippines to import agricultural products, contributing to the trade deficit. The script also discusses the country's weak manufacturing industry, contrasting it with the export-oriented manufacturing of neighboring countries like Vietnam and Thailand. The lack of a strong industrial base, exemplified by the failure of the National Steel Corporation, is highlighted as a significant factor in the country's poor export performance. The video concludes by acknowledging the debate over whether the trade deficit is detrimental, considering the country's reliance on imports for economic growth and the offsetting surpluses in service trade and income from overseas Filipinos.

Keywords

💡Trade Deficit

A trade deficit occurs when a country imports more goods and services than it exports, resulting in a negative balance of trade. This can impact a country's economy by affecting its currency value and economic growth. In the context of the video, the Philippines experienced a significant trade deficit of $54 billion in 2022, which is a major concern as it indicates that the value of imports exceeded exports, potentially due to factors such as corruption, political instability, or a lack of competitive industries[1][2].

💡International Trade

International trade refers to the exchange of goods and services between different countries. It is a crucial aspect of global economics, allowing countries to access a wider range of products and potentially benefit from lower prices. The video discusses how international trade plays a role in the Philippines' economy, particularly in relation to its trade deficit, as the country imports more than it exports, leading to a negative balance[1].

💡Corruption

Corruption is the dishonest or fraudulent conduct by those in power, which can have severe economic implications, including impacting international trade. The video script suggests that corruption might be one of the factors contributing to the Philippines' large trade deficit, potentially by hindering the development of competitive industries and efficient export practices[1].

💡Political Instability

Political instability refers to a lack of consistency or predictability in a country's governance, which can create uncertainty and negatively affect economic activities, including trade. The video implies that political instability could be a contributing factor to the Philippines' trade deficit, as it may deter foreign investment and disrupt the development of a stable trading environment[1].

💡Manufacturing

Manufacturing is the process of producing goods or parts of goods through manual labor or machinery. It is a key component of a country's ability to export, as it provides the products that can be sold to other countries. The video highlights that the Philippines lacks a strong manufacturing sector, which is a significant factor in its trade deficit, as it does not produce enough goods for export, leading to a reliance on imports[1].

💡Agriculture

Agriculture is the art and science of cultivating plants and livestock for food, fiber, and other products. It is an important sector for many countries' economies and can contribute significantly to exports. The video points out that the Philippines' agricultural sector is not performing well, with inefficient cereal yield, which forces the country to import agricultural products rather than exporting them, thus contributing to the trade deficit[1].

💡Industrialization

Industrialization is the period of social and economic change that a nation experiences when it moves from an agrarian-based economy to one dominated by industry and manufacturing. The video suggests that the Philippines' lack of industrialization is a probable cause for its trade deficit, as it has not developed the industries necessary to produce goods for export on a large scale, leading to a reliance on imported goods[1].

💡Commodities

Commodities are basic goods used in commerce that are interchangeable with other goods of the same type. They are often used as inputs in the production of other goods or services. The video mentions that the Philippines has to import commodities such as oil and gas due to insufficient domestic production, and fluctuations in their prices can significantly affect the country's import values and contribute to the trade deficit[1].

💡Economic Growth

Economic growth refers to the increase in the inflation-adjusted market value of the goods and services produced by an economy over time. The video discusses the debate over whether the Philippines' trade deficit is beneficial or detrimental to its economic growth. While imports are necessary for development, an ongoing trade deficit could imply over-reliance on foreign goods and potential missed opportunities for domestic production[1].

💡Balance of Payments

The balance of payments is a record of all economic transactions between the residents of one country and the rest of the world over a period of time. It includes the balance of trade (goods and services), as well as financial flows. The video notes that despite the trade deficit, the Philippines has other means of receiving money, such as surpluses in service trade and income from the overseas Filipino workforce, which are part of the overall balance of payments[1].

Highlights

The Philippines registered a trade deficit of $54 billion in 2022, one of the worst in the world.

In 2021, the Philippines had the fourth largest trade deficit globally, following Pakistan, India, and the United States.

International trade is crucial for the Philippines' domestic and global economy, providing access to a variety of goods and services.

The trade deficit occurs because the Philippines imports more than it exports, resulting in a $54 billion deficit in 2022.

Total goods exports reached $57.4 billion in 2022, while imports exceeded $126.8 billion.

Corruption is often cited as a significant factor contributing to the Philippines' large trade deficit.

Natural disasters and the country's inability to produce goods for export are also blamed for the trade deficit.

The lack of export-oriented manufacturing and a strong industrial base is a key reason for the trade deficit.

Vietnam and Thailand, with robust manufacturing sectors, are in a better trade position compared to the Philippines.

The Philippines' National Steel Corporation once a major steel-maker in Asia, has now failed, reflecting the country's weak industrialization.

Agricultural inefficiency, with a cereal yield of 3.77 tons per hectare, contributes to the need for importing agricultural products.

The Philippines' poor agricultural performance and weak manufacturing industry are major factors behind the trade deficit.

Commodity price fluctuations, especially for oil and gas, impact the Philippines' import values and trade deficit.

Some argue that the trade deficit is beneficial as it supports economic growth through necessary imports for industries.

The Philippines has a surplus in service trade, largely due to the Business Process outsourcing sector.

Remittances from overseas Filipino workers contribute significantly to the country's balance of payments.

The debate on whether the trade deficit is good or bad for the Philippines' economy continues due to the complexity of factors involved.

Transcripts

The Philippines in 2022 has incurred one of  the worst trade deficits in the entire world.  

Registering a whopping $54 billion US dollars[1]!  This issue has been going on for decades already!  

Further data from the World Bank on its net trade  in goods and services for the Philippines has  

even shown that the Philippines in 2021 incurred  the fourth largest deficit in the entire world,  

just behind Pakistan, India, and the United  States[2]. Hence, this brings us to the most  

important question of today’s video. Why? Why has  the Philippines become one of the worst places in  

the entire world for international trade? Is it  because of corruption? Has political instability  

and inaction been a cause for poor exports? Or is  it because of the huge population the country has,  

which continuously needs to import goods and  services to fulfill its standards of living?  

Well, there are several arguments for why the  Philippines is in a terrible international  

position. But let us first understand the basics  of trade before we dive into the Philippines.

First, International trade refers to the  exchange of goods and services between  

different countries. This can happen in a  variety of ways, such as a country exporting  

goods to another country or importing goods  from another country. For example, if a company  

in Japan sells cars to the Philippines, that's  an example of international trade. Similarly,  

if a country like China produces and exports  electronic devices to other countries,  

that's also international trade. International  trade plays an important role in both the domestic  

economy of the Philippines and the global  economy. For the most part, it allows the  

citizens of the Philippines to access new goods  and services unavailable in the domestic markets.  

It allows these citizens to also access them at  a cheaper price. Overall, international trade has  

helped improve one’s economy and its citizens  in various ways. However, there are countries  

like the Philippines which are in an unfavorable  position when it comes to international trade.  

Simply because the Philippines imports more  than it exports, hence why we have stated in  

the first part of the video that the Philippines  has a 54 billion dollar trade deficit. It simply  

means that the Philippines has imported more  than it exported, hence a deficit. Total goods  

exports in 2022 reached 57.4 billion dollars, but  imports reached over 126.8 billion dollars[3].

Understanding this, we can then answer why  the Philippines has a big trade deficit. One  

of the many claimed answers to this is  that the Philippines simply has a huge  

form of corruption. Many people think that  corruption is the biggest reason why there  

is a huge deficit in the country’s trade. Some,  on the other hand, think it's simply because the  

Philippines is not in a position to trade. How can  it produce goods to export when it faces several  

tropical and natural disasters every single  year? Well, there are a lot of answers to why  

the Philippines has a big trade deficit.  It can even be stated that each of these  

answers can contribute to the underlying  issue. However, one of the most probable  

answers to this cause can be traced back to the  overall industrialization of the Philippines.

Amongst the most important factors that help a  country's exports is manufacturing. Let us take  

for example Vietnam and Thailand, two neighboring  countries with similar economic patterns to that  

of the Philippines. These two are in a better  position when it comes to trade. They both  

report surpluses, meaning they export more than  import. Why has this been the case? Well, on the  

side of Vietnam, the country itself has a lot of  export-oriented manufacturing based factories. It  

exports a wide range of goods throughout the  world. From electronics to steel, and even  

agriculture, which is a key part that we can also  discuss later. Thailand, likewise, is also a huge  

exporting country. It is known as the “Detroit of  Asia” because it produces nearly a million cars  

every year for exports. These are all manufactured  domestically in their own respective countries and  

are then sold off to other countries or companies.  The Philippines, however, has nothing to that sort  

of industry. The only thing that the country  has is a big semiconductor sector. However,  

it is not enough to fill the deficit that the  country faces every year, it needs to do more in  

its industries. Furthermore, if we take a close  look at the only strong industrialization-based  

company the Philippines has, which was known  to be the National Steel Corporation of Ilijan  

steel mill. A company once known to be amongst  the largest steel-makers in Asia has now failed  

after the government sold it to international  companies. The trends in industrialization have  

failed the Philippines, causing the country’s  manufacturing to also be unfavorable and be  

in a weak position to export. Following these,  we can also trace the country’s weak export to  

agriculture. Data from the Food and Agriculture  Organization of the United States shows that the  

Philippines' cereal yield in 2020 is amongst  the most inefficient among the big economies  

of Southeast Asia. Cereal yield which includes  commodities like wheat, rice, maize, barley,  

oats, and so on is produced inefficiently in the  Philippines. The figure shows that the yield is  

just about 3.77 tons per hectare of agricultural  land, which compared to Vietnam is about 5.8 tons  

per hectare or even that of Indonesia at 5.28  tons per hectare[4]. This shows that the poor  

agricultural productivity in the Philippines  has put the country in a position to import  

agricultural products from foreign countries,  a rather net importer than a net exporter.

Poor agricultural performance and poor  manufacturing industry are, of course,  

key important parts of why the Philippines has  incurred huge trade deficits. There is a long  

story about why that has also been the case, but  we won’t be discussing that in today’s video. The  

corruption or political instability that most  people think of, however, may be a difficult  

answer to this cause. Studies by research  journals and international institutions  

stated that it is more than just corruption.  During the big trade deficits in recent years,  

some have coined the cause of big fluctuations  in commodity prices. The Philippines has an  

insufficient amount of production for oil and  gas, so it has to import these overseas. As we  

have seen in recent months, the prices of these  commodities have been going up and down rapidly,  

which is also causing the importation value  for the Philippines to go up and down rapidly  

as well. Some, however, have stated that  the big trade deficit in the Philippines is  

good for the overall economy. The country  is heavily reliant on imports of goods,  

such as oil and machinery, which  are used in various industries,  

including manufacturing and construction.  These imports are necessary to support  

the country's economic growth and development,  but they also contribute to the trade deficit.

Furthermore, it is also rather difficult to  suggest that the big trade deficit in the  

Philippines is bad. Because on the one hand, there  are calls that these imported goods will help the  

economy grow, and on the other hand, some have  stated that the Philippines is overly reliant  

on the importation of goods, and have failed to  produce some of these products domestically. Well,  

one of the final things to understand here is  that while the Philippines indeed has a huge  

trade deficit, it is, as matter of fact, not all  that bad. Because while the outflow of money is  

seen in the country due to buying more goods from  foreign countries than selling, the Philippines  

still has other means of receiving money. The  Philippines has a surplus in service trade,  

which is a given due to the country’s Business  Process outsourcing sector. Service trade  

has recorded a surplus of about 15.6 billion US  dollars in 2022 according to data from the Central  

bank of the Philippines. Primary and Secondary  income has also recorded massive surpluses,  

a combined of about 36 billion dollars. These  are in part due to the huge overseas Filipino  

workforce that the Philippines has. For  instance, Filipinos from the United States  

often send money to the Philippines which then  helps the overall balance of payment of the  

Philippines. Another concept that is important  in the conversation of international trade.

But anyway, the Philippines’ trade  industry’s big deficit is simply  

because of a weak manufacturing industry, and  poor agricultural performance. Nevertheless,  

it is still debated whether it is good  or bad for the overall economy. Simply  

because there are other factors that  are also helping the entire balance of  

payment of the Philippines. Do let us  know what you think. Why do you think  

the Philippines has a big trade deficit? Is it  really because of corruption? Thanks for watching!