Trump’s trade war would affect Puerto Rico

by Mar 15, 2018Economy, Headlines0 comments

After a year of delighting conservatives and investors with tax cuts and regulatory rollbacks, Pres Trump is finally following through on the tough trade rhetoric he had during his campaign. The type of rhetoric that terrifies economists, investors, republican leaders and lower-income citizens around the US, who will ultimately have to pay more for goods and services. This couldn’t have come at a worse time for the islands of Puerto Rico who have been suffering the past 6 months from the devastation of Hurricane Maria and higher consumer prices will further impede the territories’ ability to stabilize economic growth.

President Trump’s latest move was a 25 percent tariff on steel imports and 10 percent of aluminum imports. This move shook global markets and angered world leaders, provoking a direct response from the European Commission President Jean-Claude Juncker, who said Friday that the EU could impose tariffs on Harley Davidsons, Levi jeans and bourbon.

“I don’t like using the word trade war, but I can’t see how this isn’t part of warlike behavior,” Juncker told German media.

On Saturday, President Trump then threatened the European Union with a tax on cars made in Europe via Twitter.

“If the EU wants to further increase their already massive tariffs and barriers on US companies doing business there, we will simply apply a Tax on their Cars which freely pour into the US,” Trump said.

This is just one example of how tensions are rising for world leaders, angered by the across-the-board tariffs with no exclusions.

The US is the main trading partner of Puerto Rico and accounts for nearly 90% of latter’s exports and over 55% of its imports. This leaves Puerto Rico tied to whatever fate America or more specifically, President Trump, decides to move towards.

Puerto Rico’s remaining top 25 importers include the countries in the EU of Ireland, France, Spain, the UK, Italy, Lithuania, Belgium and Germany. The decision to impose these tariffs has a high probability of being met by countermeasures from the EU and other countries to attempt to rebalance their own markets. This could lead to the layoff of tens of thousands of workers, cause companies to stop investing in the United States and bring an American economic engine screeching to a halt.

Also, the top 25 list of imports to Puerto Rico includes Canada and Mexico. Trump has repeatedly threatened to remove the US from NAFTA, a trade agreement between Mexico, Canada and America.  

These tariffs will bring work and business back to American workers in certain sectors and make them more competitive, but if a trade war begins, this will drive prices for consumers up, acting as inflation in a way. When people have less purchasing power, they spend less, causing companies’ revenues to decline forcing them to lay off workers to cut costs. This may have a directly negative effect on the global economy and leave Puerto Rico citizens, who consist of mainly lower income citizens, left with no jobs or enough money to support themselves.

Puerto Rico also has severely lacked a sustainable power grid and still has thousands of people without basic electricity. In January, Trump enacted a punitive 30% tariffs on solar panel imports, impeding their ability to buy solar panels at the lowest possible cost and this is crucial for a government who is 73 billion in debt. The tariff isn’t specifically targeted at China, but that’s where most imported solar panels come from.

Trump’s Chief Economic Advisor seems to also disagree with the direction trade is heading, as he announced his resignation on Tuesday.

President Trump argues, reducing trade deficits will work in tandem with lowering taxes and reducing federal regulations, to supercharge growth but if China, the US’s biggest trading partner, or any country in which we do trade with, responded with hostility and a trade war began with them, there would be a myriad of unintended consequences – higher consumer prices, offshored jobs, and an increased trade deficit. Only time can give the answer to if Trump’s newly enacted tariffs and harsh rhetoric will threaten the economic growth of not only Puerto Rico, but the entire world economy.