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On January 20, the United States leaped into a new chapter of its international economic strategy. In assessing how to best engage Southeast Asia economically, the Trump administration will need to consider how the regional powers’ economic and security standing has evolved vis-à-vis the United States and China. The past four years show the Philippines continues to be a key piece of a successful approach for Washington. In 2024, the United States strengthened its military and economic ties with the Philippines as the world witnessed the nation maneuver around its maritime rival, the People’s Republic of China (PRC), in the South China Sea. Understanding the Philippines’ economic diversification path, economic relations with other nations, security imperatives, and ability to be a friendshoring partner for the United States may help inform the Trump administration on how to maintain influence in Southeast Asia.
Q1: Have past territorial disputes impacted the bilateral trade relationship?
A1: Since President Xi Jinping took office in 2013, the Philippines has had three different presidents, each with varying approaches toward China. Nevertheless, the Philippines has relied heavily on trade with the PRC. China, its largest trading partner in 2023, exported $52.4 billion of goods to the Philippines, including electrical equipment, machinery, and nuclear reactors. The Philippines, China’s twentieth-largest trading partner, exported $10.65 billion of goods, mostly electrical equipment, ores, and ash. These trade patterns have remained largely steady; however, conflicting territorial disputes on the South China Sea, the Philippines’ historic military partnership with the United States, and delays from China on Philippine infrastructure projects contribute to the Philippines’ efforts at economic diversification away from the PRC.
China’s nine-dash line, represented below in Figure 1, conflicts with territorial claims held by the Philippines, Vietnam, Taiwan, Malaysia, and Brunei. In 2016, the Permanent Court of Arbitration ruled that Beijing’s claim to historic rights within the nine-dash line was invalid and ruled that none of the islands it claims are entitled to the 200-nautical mile exclusive economic zones or a continental shelf, including the contested Paracel Islands, Spratly Islands, Scarborough Shoal, and Second Thomas Shoal. The Tribunal found that China “caused severe harm to the coral reef environment and violated its obligation to preserve and protect fragile ecosystems.” Although it is legally bound to this ruling and maritime designations within the United Nations Convention on the Law of the Sea, China has not complied in the South China Sea.
Figure 1: China’s Claims in the South China Sea
In October 2023, a Chinese coast guard ship and accompanying vessel rammed a Philippine coast guard ship and supply boat near the Second Thomas Shoal. Just days later, Philippine Transportation Secretary Jaime Bautista announced the cancellation of three Chinese-funded infrastructure projects that were negotiated by former Philippine President Duterte. Bautista emphasized that the collision did not influence his decision—rather, China’s delays prompted the Philippines to call on Japan, South Korea, the United States, and the European Union for “better” deals. From 2024 through January 2025, interactions between the Philippines and China persist in critical segments of the South China Sea.
Q2: Are tensions impacting the Philippines’ involvement in the BRI?
A2: Since 2000, there have been over 200 PRC-backed infrastructure projects in the Philippines. Former President Duterte, who pledged to shift foreign policy away from the United States and towards China and Russia, entered the Philippines into the Belt and Road Initiative (BRI) in 2018 to secure more funding for the Philippines’ Build! Build! Build! Infrastructure Program. However, Duterte seemingly fell for China’s pledge trap of promising grand investments with little to no accountability for seeing them to completion.
In 2018, the BRI’s reputation was undermined when the PRC’s State Council, Ministry of Commerce, and National Development and Reform Commission stopped requiring project application approvals for overseas activities. This change disregards previously held project oversight and quality control guidelines, potentially making it easier for disreputable Chinese companies to engage in foreign contracted projects and financial investment activities. Chinese infrastructure projects in the Philippines have led locals nationwide to question the environmental impact, potential degradation, and call out the unequal distribution of beneficiaries from completed initiatives. In October 2023, China hosted the third Belt and Road Forum, which President Marcos did not attend, signifying the Philippines’ disengagement with the program. The Philippine government has sought out domestic, Japanese, U.S., and South Korean investors to reinvigorate the development progress of bridges, railways, and airports. The table below represents a selection of 10 infrastructure projects in part or fully financially supported by the PRC, their project completion status, and whether the projects maintained China’s funding. Of the 10 projects, 4 have either been abandoned by China, or the Philippines decided to pull in a different investor.
Q3: How did the Philippines-China relationship evolve throughout 2024, and did it impact the Philippines’ international economic engagement?
A3: Last year witnessed the Philippines and China in headlines frequently. In June, an incident occurred on the Second Thomas Shoal when the Chinese coast guard surrounded and rammed Philippine boats on a resupply mission. Armed with knives and axes, the Chinese damaged Philippine vessels and equipment, consequently leading to a Filipino naval member losing a thumb. In response, President Marcos said his country would not yield to “any foreign power” but that the Philippines is not “in the business to instigate wars.” The United States reaffirmed its security commitments with the Philippines, acknowledging that it would assist the Philippines militarily should a conflict in the South China Sea take place. In November, ahead of the change of U.S. administrations, President Marcos and then U.S. Secretary of Defense Lloyd Austin met in Manila to reaffirm U.S. intent to uphold the 1951 Mutual Defense Treaty, acknowledged China’s escalatory measures in the South China Sea and signed the General Security of Military Information Agreement permitting the transfer of sensitive intelligence between the two allies. China, in turn, urged the Philippines to “seriously consider the future” of their relationship in September. Despite the growing geopolitical tensions, the Philippines maintains a firm stance that it is open to trade with China; in June 2024, the Philippine secretary of socioeconomic planning directly acknowledged China when announcing that the Philippines is open to investments and trade from “any country, including China.” However, the nation has also taken strategic steps to strengthen its economic pathways with other nations, signifying a slowdown in its relationship with China.
The United States and the Philippines met in July 2024 under the U.S.-Philippines Trade and Investment Framework Agreement to discuss challenges with agriculture, labor, government procurement, intellectual property, environment, automotive safety standards, and supply chains. Both countries reaffirmed their intent to strengthen their bilateral trade relationship. Likewise, the Philippines signaled an openness to stronger economic and military ties with the Republic of Korea through the signing of memorandums of understanding (MOU) in October 2024. These MOUs vary from boosting defense cooperation, increasing bilateral trade of critical raw materials, committing to tourism, developing the Philippines’ nuclear energy sector, and financing infrastructure projects. Following this, Korea’s Trade-Investment Promotion Agency (KOTRA) held the Korea-Philippines Business Partnership event in Manila to enhance business exchanges and cooperation. Recently, the Philippine National Economic Development Authority and KOTRA met under the newly minted Korean-Philippine Economic Innovation Partnership Program, which resulted in three comprehensive plans for digital infrastructure projects. Before the MOUs, the Philippines and South Korea initiated a free trade agreement in 2023 which lowered or removed tariffs on Korean and Filipino commercial and passenger vehicles and Korean copper wire.
Q4: How does the Philippines fare as a potential friendshoring partner?
A4: The Philippines enjoys a comparative advantage in the technology sector. The Philippine semiconductor market, which has benefited greatly from the global uptick in semiconductor demand, is transitioning into more specialized areas, such as integrated circuit design and fabrication. Its semiconductor industry is expected to grow 10–15 percent annually until at least 2027. When the U.S. Secretary of Commerce, Gina Raimondo, visited Manila in March 2024, she said that the United States is “all in on the Philippines” as a key player in diversifying semiconductor industry supply chains. Under the Chips and Science Act’s International Technology, Security, and Innovation Fund, the United States designated the Philippines as a partner country to incentivize the Philippine semiconductor industry to become more conducive for U.S. investors by funding initiatives such as training 128,000 semiconductor engineers and technicians by 2028. The Philippines has been increasing its high-technology exports since the early 2010s, with the top products being integrated circuits, office machine parts, gold, semiconductor devices, and insulated wire. The Philippines’ gross domestic product is expected to grow by 6.2 percent in 2025 and is one of the fastest-growing economies in Southeast Asia.
To build international credibility as an attractive trading partner, the Philippines needs to develop reliable energy sources and invest in infrastructure to facilitate growth in sectors that require 24-7 connectivity. Despite the high cost of powering its 7,641 islands, the Philippines has expanded its energy and infrastructure commitments, utilizing public-private partnerships and governmental loans with the United States, South Korea, and Japan. In November 2023, the United States and the Philippines signed a “123” civil-nuclear cooperation agreement to facilitate Philippine civil-nuclear energy operations in support of the climate and the clean energy transition, which led the Philippine Department of Energy to sign two MOUs with the Philippine-American Educational Foundation to promote capacity building and workforce development through scholarships and Fulbright exchanges in May 2024.
Under the Foundational Infrastructure for Responsible Use of Small Modular Reactor Technology (FIRST) program, the United States and Japan will cohost a nuclear energy study tour for nuclear experts and policymakers in Japan for the Philippines and other FIRST partner nations. Additionally, South Korea and the Philippines signed an MOU to run a feasibility study of the Philippines’ controversial Bataan nuclear power plant. The Bataan nuclear power plant has been abandoned since its completion in 1984, unable to open due to concerns generated by former President Marcos Sr. receiving payouts from the contracted electrical company Westinghouse, the Chernobyl disaster in 1986, and safety concerns related to the plant’s location in an earthquake zone. Although the Philippines has been maintaining the tourism facility, the feasibility study acts as a step forward for reviving the plant and continuing President Marcos’ mission of incorporating nuclear energy in the Philippines’ power grid by 2032. The steps the Philippines has taken to elevate its economic standing through partnerships with other countries will likely make the country more attractive to foreign direct investment and may lessen its trade dependence on the PRC.
William Reinsch is senior adviser with the Economics Program and Scholl Chair in International Business at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Reena Samuel is an intern with the Economics Program and Scholl Chair in International Business at CSIS.
