Politics

The U.S. And The Philippines – Duterte And Diplomacy

The U.S. And The Philippines – Duterte And Diplomacy by Satya Patel, Matthews Asia

The U.S. and the Philippines have long been allies, but could this bond be weakening under new Filipino President Rodrigo Duterte? Since the end of American colonial rule 70 years ago, the U.S. has maintained military bases in the Philippines and has been one of the leading sources of foreign direct investment (FDI) into the Philippines. Filipinos have embraced their ties to the U.S. and even have a more favorable view of Americans than do Americans themselves.

Rodrigo Duterte

Famous for his outspoken, course mannerism, President Duterte has, as many expected, had a very unique start to his presidency, and at least in the short term, seems to have strained some international relations. Few would have predicted, though, that just a few months into his administration, he would have garnered international headlines for insults directed to U.S. leaders, the U.S. ambassador to the Philippines and President Obama, which led Obama to cancel a scheduled meeting with Duterte in Asia in September.

Meanwhile, after several years of clashes between the Philippines and China over territorial claims in the South China Sea, Duterte seems to be striking a conciliatory tone. While the Philippine economy has been strong and stable for years, a 2014 U.N. report showed it had the lowest GDP from FDI among ASEAN nations (less than half of next-lowest Indonesia). As Chinese outbound FDI continues to surge, could Duterte be trying to position the Philippines as a potential investment destination?

Even if FDI from China is slow to materialize, there is no doubt that the economic importance of strong ties with China continues to increase. Philippine exports to China have risen more than 50% since the Global Financial Crisis, while imports from China have tripled. Meanwhile, remittances from Filipinos in Hong Kong have doubled since 2012, and tourist arrivals from China and Hong Kong are also still growing.

China’s role in the global economy is rising, and so is its importance as an economic partner to other Asian nations. For a country like the Philippines to continue to grow and thrive, close economic ties to China are vital. It remains to be seen whether Duterte will continue to tame his tongue when it comes to China, but economically he may be well advised to.

Satya Patel

Portfolio Manager

Matthews Asia