The Philippines is pressing the United States and its allies to boost trade and investment in the country amid rising tensions between Manila and Beijing and fears of wider economic fallout.
Philippine Secretary of Trade and Industry Alfredo Pascual said in an interview with the Financial Times that economic security must be at the heart of the strategic relationships the Philippines has with its allies.
“This is important because if you are economically secure, you can afford to strengthen your defence. If you are not economically secure, you cannot redirect or utilise resources for defence,” he told the Financial Times. “You need credibility in your defence posture.”
The dispute over the South China Sea has become a major sticking point between the Philippines and China, its largest trading partner. Tensions have risen in recent months after Chinese coast guard vessels fired water cannons at Philippine ships, injuring Filipinos.
The Philippines, which has lagged behind Southeast Asian nations for more than a decade in attracting foreign investment, is seeking funds to bolster its infrastructure and manufacturing capacity and develop its critical minerals and clean energy industries. While China is not a major source of foreign direct investment, its financial clout is significant, and as President Ferdinand Marcos Jr. seeks to attract more foreign capital, his administration is calling on allies to step in.
A diplomat from an ally of the Philippines said building economic resilience could help the country avoid becoming more dependent on China. “If the economy is weak, we may have to compromise. Security and economy are intertwined.”
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Under Marcos, the Philippines adopted a tougher stance in the South China Sea to counter an aggressive Beijing, vowing to build military outposts in disputed waters and strengthening defense cooperation with allies. Manila also became more public about Chinese incursions into what it claims as its territorial waters, a departure from the administration of former President Rodrigo Duterte, who downplayed Beijing’s maritime activities and forged closer ties with China.
The United States has been stepping up military engagement with its oldest Asian ally, but the Manila government wants to step up economic engagement as tensions rise. “We are also looking at this from the perspective of our vulnerability to economic pressure from China,” a senior Philippine government official said.
“We’re saying we’re on the very front lines of the battlefield, so we need to walk the talk on the economic front,” he said of the United States.
Despite the US being the largest supplier of FDI in the region with net investments of $36.9 billion among ASEAN countries in 2022, its non-participation in multilateral trade agreements and what analysts say is an excessive focus on security have undermined its credibility as an economic partner not only in the Philippines but also in Southeast Asia. The Philippines has intensified its push for a free trade agreement with the US, but Manila has noted President Joe Biden’s administration’s reluctance to pursue one in an election year.
“The United States is an important security partner to many countries in the region, but its focus on security can make bilateral relations appear unbalanced and aggressive,” said Kevin Cheng, an associate research fellow at the S. Rajaratnam School of International Studies in Singapore.
“Meeting the specific economic development needs of partners will not only meet Washington’s own strategic needs, but also demonstrate that it values ​​the relationship.”
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A survey conducted by the Isseis Yusof Ishak Institute in April found that compared to last year, China narrowly surpassed the United States to become the most preferred alliance between the two major superpowers in Southeast Asia.
“China is undoubtedly the most influential economic power in the region and also continues to be seen as the most influential political and strategic power, significantly outperforming the United States in both areas,” the survey said.
The United States withdrew from the Comprehensive and Progressive Agreement for Trans-Pacific Partnership under President Donald Trump and is not part of the China-led trade pact, the Regional Comprehensive Economic Partnership.
Instead, Washington is promoting President Biden’s economic engagement effort in the region, the Indo-Pacific Prosperity Economic Framework. Through the G7, the U.S. is also proposing the Global Partnership for Infrastructure Investment (PGII) to developing countries as an alternative to China’s Belt and Road Initiative.
The United States, along with Japan, is supporting the development of the Philippines’ Luzon Economic Corridor as its first large-scale infrastructure project. At the recent Indo-Pacific Business Forum in Manila, the United States committed to mobilizing public and private financing for the corridor, which will include rail, ports, semiconductor factories and clean energy projects.
“We hope this will be a model that can be used in the region,” Helaina Matza, deputy special coordinator for PGII, told the Financial Times.
He said it was “not too late” for the United States to counter Chinese dominance in the region, but that “it will just take time.”
RSIS’s Cheng said the Luzon Corridor alone will not be enough to resolve doubts about U.S. commitment to the region: “It will be a tough task to convince Southeast Asian countries that the U.S. remains a reliable economic partner.”
