Japan-Philippines Trade Deficits Widen as AI Exports Fail to Offset High Oil Price Impact
Miles Bennett
Japan and the Philippines both posted wider trade deficits in June — AI-driven electronics export growth still couldn't outrun surging energy import costs. This means Asia's 'assembly-tier' economies are squeezed on both ends: exports earn too little, imports cost too much.
Exports are booming on AI demand — so why are the trade books still red?
Philippine exports rose 24% year-on-year in June; Japan's rose 19%, both lifted by global AI demand for electronics shipments.
But Japan's petroleum import bill surged 59% in yen terms, pushing total imports up 25% — import growth far outpaced exports.
This means → AI exports are the bonus question, but oil is the one that decides the final score. The extra export revenue doesn't fill the hole that higher oil prices rip open.
Same AI boom — why can some economies stay in surplus while others can't?
Mizuho Research economist Daisuke Imai noted that South Korea and Taiwan — economies that benefit directly from the AI boom — can maintain surpluses even with elevated oil prices.
Vietnam, the Philippines, and Thailand, by contrast, have low value-added rates in their electronics and electrical exports, making it hard to capture the full AI windfall.
In plain terms = South Korea and Taiwan sell the "high-price parts" in the AI supply chain — chips, memory — while Southeast Asia sells more of the "assembly step." Same product category, very different unit prices and margins.
What has the oil price actually done?
The Asian benchmark Dubai crude spot price spiked to roughly $170 per barrel in March, up from about $70 before the conflict.
It eased back to pre-conflict levels in June on expectations of supply normalization, but climbed again to about $100 per barrel last week amid renewed geopolitical tensions.
Yoshiki Shinke of Dai-ichi Life Research Institute pointed out: once prices stay elevated and import volumes normalize, nominal import bills rise mechanically, widening the deficit further.
Beyond oil, what else is pushing imports higher?
Louise Loo, head of Asia economics at Oxford Economics, noted that Asia is in an investment cycle — governments are ramping spending on AI, data centers, defense, renewables, and supply-chain resilience.
These investments require heavy machinery imports, driving up import demand and dragging on trade balances.
This reflects a structural tension: countries spending to "build the future" see their near-term trade accounts worsen. Indonesia's trade balance turned negative in May for the first time in six years; Vietnam posted its first quarterly deficit since 2022.
Can currency depreciation help exports? Are there other offsets?
Louise Loo noted that currency depreciation does little for exports — Indonesia, the Philippines, and India, the economies under the most currency pressure, are domestic-demand-driven with low export elasticity.
In plain terms = these economies run on domestic consumption, not export factories. A weaker currency barely lifts export volumes — but it does make imports more expensive.
Manu Bhaskaran, CEO of Centennial Asia Advisors, offered a longer-term offset: Gulf states expanding infrastructure to reduce dependence on the Strait of Hormuz may boost demand for Asian workers, driving remittance inflows that partially cushion the trade-deficit hit.
What to watch next?
The near-term pivot is a single variable: whether oil prices can retreat to pre-conflict levels.
Imai warned that with oil holding at elevated levels, other Asian economies may face similar trade-deficit pressure starting in July.
Japan's cumulative January–June trade deficit narrowed versus the same period in 2025, mainly on higher integrated-circuit and semiconductor-equipment exports — this means → the AI export dividend is real, but whether it can keep outrunning oil prices remains an open question.
Content is for reference only, not financial advice.