IMF warns Pacific economies face indirect hits from regional tariff tensions as some nations cut tariffs on imports
The Pacific Island nations could feel the spillover effects of rising tariffs and global trade frictions even though their direct exports to the United States are small. The IMF’s Nada Choueiri says the main risk is through the economies of major trading partners—Australia, New Zealand, broader Asia, and the United States—which could dampen growth, investment, and remittance flows to the region.
Some Pacific islands have rolled back recent tariff increases. Fiji’s tariffs were trimmed from 32% to 15%, a relief for exporters, though officials say the journey is far from over. Vanuatu’s rates fell from 22% to 15%, and Nauru’s from 30% to 15%. Papua New Guinea, by contrast, saw an uptick from 10% to 15%, while New Zealand also adopted the 15% level.
Choueiri cautions that shifts in equity markets could squeeze sovereign wealth funds in some PICs, eroding buffers that support long-term economic stability. The warnings come as industrial outlooks across the region remain cloudy, with economists pointing to tariff uncertainty, weaker factory activity, and evolving production patterns in China, Japan, South Korea, and Taiwan.
Oxford Economics notes that tariffs are a central drag on forecasts. Growth in China is expected to slow from roughly 4% to around 3% this year, with a rebound toward 4% in 2026. While reciprocal measures between the United States and China have been pared back, additional tariff layers—along with low-value imports subject to de minimis tariffs—continue to weigh on regional trade. This has contributed to a downturn in China’s industrial production, with projections that it won’t regain its early-year output until mid-2026.
Across the Asia-Pacific, growth is forecast to slow but stay relatively resilient. Services look set to outperform goods production, yet persistent volatility in key manufacturing hubs could disrupt supply chains and push up prices region-wide. There are no clear winners in this environment, and firms are increasingly shifting production to neighboring markets to sidestep tariffs.
For PICs as they plan budgets and reforms, the focus is on resilience rather than retaliation. The IMF emphasizes debt sustainability, revenue mobilization, and prudent expenditure as foundations for weathering external shocks. In parallel, discussions around climate resilience financing and digital inclusion remain on the agenda to strengthen long-term growth and diversification.
Possible bright spots include Papua New Guinea’s improving outlook driven by mining activity and higher prices for gold, as well as potential declines in global oil prices that could lower imported costs for some economies if exchange rates remain stable. Still, debt distress remains a concern for several PICs, underscoring the need for prudent fiscal management and sustainable investment.
In short, Pacific Island nations face a challenging global trade backdrop. While some tariff relief is providing temporary relief for exporters, the broader regional and global dynamics could quietly reshape investment, tourism, and growth trajectories for years to come. The region is leaning into diversification, resilience-building, and closer regional and international collaboration to navigate the changes.
Additional context and value to readers
– Key takeaways for PICs: monitor partner-country growth, diversify trade partners, maintain fiscal buffers, and advance resilience-finance initiatives.
– Sectors to watch: tourism and remittances remain most vulnerable to external shocks; services may cushion some of the drag on goods-producing sectors.
– Policy angles: continue tariff relief where possible, accelerate revenue mobilization, and prioritize climate resilience funding to reduce exposure to external volatility.
– Positive framing: while the environment is uncertain, regional cooperation and strategic diversification can open new market avenues and lower the cost of imports over time, aiding price stability and growth.
Summary: The latest IMF and market analyses show that Pacific Island economies face indirect pressure from tariff tensions and global trade shifts. Some tariff reductions provide relief, but the region must navigate a slower growth environment, higher external risk, and debt vulnerabilities through prudent policy, diversification, and resilience investments.
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