Why The Philippines Has a Big Trade Deficit
Summary
TLDRThe 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
🌍 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.
🌾 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.
Mindmap
Keywords
💡Trade Deficit
💡International Trade
💡Corruption
💡Political Instability
💡Manufacturing
💡Agriculture
💡Industrialization
💡Commodities
💡Economic Growth
💡Balance of Payments
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!
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