How Trump’s tariff policy becomes ideal for Guam

 By Phillip V. Cruz, Jr.

 When President Donald Trump imposed sweeping tariffs on foreign goods, most Americans felt the ripple effects in rising prices and shifting trade dynamics. But on the tiny island of Guam, 6,000 miles from Washington D.C., the impact is unique. Nearly every product available on Guam is imported and the cost of living is already high.

How does the Trump tariff policy affect Guam?

Gary Hiles

Gary Hiles, chief economist at the Guam Department of Labor, highlighted the silver lining to Guam’s political status under Trump’s current tariff regime. “Guam is outside of the U.S. Customs system and the U.S. tariffs do not apply to imports to Guam,” he said.

U.S. tariffs are collected for imports into the United States, Hiles said. Since Guam is outside of the U.S. Customs system, tariffs will have no direct impact on Guam. “U.S. tariffs apply to the U.S. territory of Puerto Rico but not to the U.S. Virgin Islands or Guam,” Hiles noted.

Because of Guam’s political status as an unincorporated territory of the United States, Guam can set its own tariffs on goods. Although the U.S. tariffs won’t directly affect the cost of goods shipped straight to Guam, there will still be indirect effects.

Several items sold on Guam come from countries affected by the tariffs, but they first go through U.S. suppliers who get taxed. Those extra costs end up being added to the final price when the goods reach Guam.

However, this could open up a chance for businesses to skip those extra costs by importing directly from the original country to Guam. As a result, companies might rethink their shipping routes to save money.

The price of goods on Guam has always been high, but, Hiles noted, “none of that is due to tariffs.”

The major price factors include Guam’s location and the century-old protectionist law known as the Jones Act. No federal policy imposes a heavier burden on Guam than the 1920 shipping law, which restricts the transportation of goods between U.S. ports on U.S.-flagged and U.S.-built vessels, resulting in exorbitant shipping rates.

Besides the shipping costs, Hiles said, prices are further bloated by additional warehouse storage fees required due to Guam’s remote location. “The relatively small market size is also a factor due to limited competition for some products and fewer economies of scale of larger markets,” he added.

Hiles said that if Guam were to become a state, it would be under U.S. Customs’ jurisdiction. “Areas with other statuses, such as the freely associated states and the Commonwealth of the Northern Mariana Islands, are not subject to U.S. tariffs. Under Covenant Section 603, the CNMI controls its own customs, the tariffs do not apply directly to the CNMI,” Hiles added. “Goods shipped from the U.S. to Guam are not subject to tariffs.”

Imports to the U.S. are subject to tariffs, but exports from the U.S. are not subject to taxes; such taxes are prohibited under the U.S. Constitution. 

Goods coming out of Guam are considered U.S.-made. “The General Headnote 3(a)(iv) of the U.S. Harmonized Tariff Schedule allows products manufactured on Guam to be treated as made in the U.S. and not subject to import taxes, provided that sufficient value-added is gained in Guam manufacturing,” Hiles explained.

Sen. William Parkinson said Trump’s new tariff policy has paved the way for Guam to leverage its tariff-free status.

He introduced Bill 102-38, titled the Guam Tariff Advantage Development Act, which would create tariff advantage zones around the island to attract manufacturing enterprises and foster economic diversification.

Under the bill, manufacturers would set up shop in Guam, import the materials needed to create their products, and then transform raw materials into finished products for eventual sale to the U.S. mainland, allowing them to bypass the tariffs.

“Critics argue Guam lacks the manufacturing capacity. But not all manufacturing is resource-heavy or requires large-scale labor,” Parkinson said. “Specialized sectors like electronics, medical devices or pharmaceuticals rely more on innovation than extensive labor.”

“Nations around the globe have engaged in tit-for-tat tariffs, and businesses are scrambling for ways to avoid costly penalties on imported products. In this geopolitical environment of high tariffs and ‘America First’ manufacturing, Guam’s tariff exemption is a golden opportunity,” Parkinson said.

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