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US commerce secretary Gina Raimondo has called for a sharp increase in capacity for assembling, testing and packaging semiconductors in the Philippines, as Washington seeks to bolster rapidly growing defence co-operation with its oldest Asian ally.
The Philippines has 13 so-called back-end semiconductor plants that specialise in assembling, testing and packaging chips manufactured elsewhere.
“Let’s double it,” Raimondo said on Tuesday during a US trade and investment mission to the Philippines. The appeal followed pledges of $1bn of fresh investment in the country from companies including Microsoft and United Airlines that were part of a 22-strong business delegation.
The push comes as government officials and analysts warn that Washington must add more economic engagement to its military and security co-operation with Asian partners if it is to compete successfully with China in the region.
The US’s absence from regional trade deals has left it struggling to counter Beijing’s influence in south-east Asian countries that are becoming more economically integrated with China.
The US is still the largest source of foreign direct investment in south-east Asia. But its exit from the Trans-Pacific Partnership trade agreement in 2017 under then-president Donald Trump and the collapse last year of the trade pillar of the Indo-Pacific Economic Framework for Prosperity (IPEF), the Biden administration’s initiative for economic engagement with the region, had left the field largely to China, analysts said.
“In terms of narratives and forward momentum, China has stolen a march on the US,” said William Choong, a senior fellow at the Iseas-Yusof Ishak Institute, a Singapore think-tank.
He said that since Washington was not part of any of the trade deals that linked the region, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the TPP’s successor, and the Regional Comprehensive Economic Partnership (RCEP), it was “increasingly isolated in the most economically dynamic region in the world”.
When the US launched IPEF in May last year, Raimondo called it an “important turning point in restoring US economic leadership in the region”, and said it would offer countries “an alternative to China’s approach”. But in November, the Biden administration abruptly cancelled the trade pillar of IPEF after it faced opposition from Democrats in Congress.
“For regional countries, IPEF doesn’t offer anything substantive without tariff cuts,” Choong said. “The only reason a lot of regional countries are still in IPEF is to signal to the US that they want them to be engaged.”
Since Philippine President Ferdinand Marcos Jr took office in June 2022, he has been vigorously strengthening his country’s alliance with the US, in sharp contrast with his predecessor Rodrigo Duterte’s cozy relationship with Beijing.
Manila has granted US armed forces access to four more military bases, restarted long-suspended patrols in the disputed South China Sea and overseen the largest bilateral military exercises in more than 30 years.
But Marcos sorely needs support to reinvigorate his country’s economy, including modernising its infrastructure and strengthening energy supplies and agriculture, for which he previously hoped to secure China’s help.
Inbound foreign investment to the Philippines dropped 6.6 per cent to $8.8bn last year, according to the country’s central bank — the second straight annual decline. Compared with the record $224bn in FDI that Asean countries attracted in 2022, the figures highlight how the country is missing out on a manufacturing investment boom spurred by global companies’ efforts to “de-risk” and diversify supply chains away from China.
The announcement of plans for $1bn in US investment “helps to address the concern that US bilateral relationships in the region tend to be over-securitised”, said Kevin Chen, an associate research fellow at the Rajaratnam School of International Studies in Singapore.
“The problem, however, is that FDI alone cannot make up for the lack of cohesive US trade and economic policies for the region,” he said. “[It is] not enough to guarantee America’s long-term relevance to the south-east Asian trading landscape.”
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