Tariff tensions: Pacific islands brace for impacts of Trump policy

By Ron Rocky Coloma

While Pacific island nations are not directly tied to high-volume manufacturing exports, economic volatility across the Asia-Pacific region poses indirect threats that are difficult to ignore.

“For most Pacific Island countries, the direct effects of the tariffs are likely to be small, because goods exports to the U.S. are small,” said Nada Choueiri, deputy director for the Asia and Pacific Department at the International Monetary Fund. “But there will be indirect effects on growth, via the tariff’s negative impact on the economies of major trading partners, such as Australia, New Zealand, Asian economies, and of course, the U.S. itself.”

Some Pacific islands, while still facing U.S tariffs, are being levied at rates lower than originally announced in April.

The tariff in Fiji was cut by more than half, from 32 percent to 15 percent.

Deputy Prime Minister and Minister for Trade Manoa Kamikamica welcomed the reduction, which offers relief to Fiji's exporters. "The 15 percent tariff is not the end of the journey,” he said in a statement.

Vanuatu's tariffs have dropped from 22 percent to 15, and Nauru's from 30 percent also to 15. Papua New Guinea has seen an increase from 10 to 15 percent, while New Zealand has also been given the 15 percent tariff.

“Sharp adjustments in equity markets may affect the performance of sovereign wealth funds in some Pacific Island countries, in which case this reduces important buffers that the Pacific island countries depend on for longer-term economic sustainability," Choueiri said

These warnings come as industrial outlooks across the Asia-Pacific region remain cloudy, despite a partial easing of U.S.-China trade tensions. Economists speaking during a second-quarter webinar hosted by Oxford Economics pointed to tariff uncertainty, weakened industrial activity and shifting production patterns as the primary causes of strain for manufacturers in China, Japan, South Korea and Taiwan.

“As might be expected, sort of the key theme and the overbearing factor that’s been weighing on all of our forecasts and our thinking… has been the story of tariffs,” said Toby Whittington, lead economist at Oxford Economics. “We’ve seen quite a sharp downgrade in headline GDP forecasts. So, we’re going from around about 4 percent down to 3 percent growth for China real GDP this year, before rebounding in 2026 back up to a sort of 4 percent level.”

While reciprocal tariffs between the United States and China have been reduced from 125 percent to 10 percent, Whittington noted that “there’s also an additional 20 percent tariff that’s been added on top of that.” Compounding matters, “there’s this de minimis tariff, which is tariffs on low value imports… and that’s at 54 percent.”

These combined pressures have triggered a downturn in China’s industrial production. “We’re actually forecasting within the Chinese industry, within Chinese IP, a recession this year. (In the second and third quarter), we have a negative growth forecast for Chinese IP,” Whittington said. “We don’t see output returning to where it was in Q1 of this year until mid-2026.”

Oxford Economics expects growth across the Asia-Pacific region to slow but remain relatively resilient. Services are projected to fare better than goods-producing sectors, but volatility in key manufacturing hubs may still disrupt supply chains and inflate prices region-wide.

“There are no absolute winners from this trade war,” Whittington said. “I think firms increasingly look to get around those tariffs by moving production away to neighboring countries.”

As island governments prepare fiscal plans and economic reforms, Pacific nations remain on alert — not for direct retaliation, but for the regional fallout that could quietly reshape their economic environment.

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