The Trump administration is going all in on tariffs, a duty or tax levied on goods that are brought into a country from another country. Tariffs serve as trade barriers, designed to make imported goods more expensive, thereby potentially protecting domestic industries. President Trump believes that his tariffs will serve this purpose, encouraging manufacturers to make goods in the United States and consumers to buy U.S.-made goods. How will tariffs affect Puerto Rico?
Rising costs
Tariffs increase costs of imported goods. For example, many manufacturers import parts or raw materials from other countries for the goods they make. Even U.S.-made products are therefore likely to become more expensive over the next months. Many residents of Puerto Rico, a territory where nearly half the population lives under the poverty line, may be more vulnerable to higher prices than the average person living in a state because low-income consumers cannot absorb higher prices as well as those living above the poverty line.
Manufacturers in Puerto Rico will also have to cope with rising prices on their raw materials and parts. Since it is an island, the territory is dependent on shipped-in elements for nearly everything made on the Island. Local sources are often unavailable.
Puerto Rican consumers also rely more heavily on imports than states do, although it’s also true that most of these “imports” are from the 50 states and don’t raise any international issues directly. This is particularly noticeable when it comes to food. Puerto Rico brings in about 85% of the food that people eat from the 50 states.
Supply chain disruption
Tariffs have the potential to disrupt supply chains. Because of Puerto Rico’s dependence on imports, this could have a large negative effect on the island’s economy.
Looking back at the supply chain disruptions that accompanied the pandemic, shortages of basic goods were an unfortunate reality. While the intention of the trade wars is to support U.S. goods, the widespread integration of the global economy could mean that tariffs affect Puerto Rico by bringing about shortages of goods. Supply and demand could, in that case, increase inflation even more.
Business opportunities
Some experts believe that tariffs could create opportunities for Puerto Rico to become a more attractive location for manufacturing and investment. After all, the important role of Puerto Rican-produced saline solution bags became widely understood and recognized after shortages caused by Hurricane Maria; perhaps Puerto Rico could grow its pharma production in conjunction with manufacturing elsewhere in the U.S. as a way for companies to grow while diversifying their domestic production. On the other hand, businesses in Puerto Rico are likely to be affected not only by tariffs on goods coming to the United States, but also on the retaliatory tariffs being applied to U.S.-made goods by other nations. Boycotts of American goods are also taking place in countries like Canada, and more may be in the offing.
The upshot could be a loss of opportunities to export goods from Puerto Rico. In combination with lower local demand for higher-priced goods, this could make waves in the local economy. Since Puerto Rico’s economy is already weak compared with many states, the territory may be more vulnerable to this kind of economic upheaval.
