What Guam can do amid the tariff chaos

From the Publisher's Desk By Mar-Vic Cagurangan

National economists are predicting an economic meltdown resulting from Donald Trump’s radical tariff regime that stirs up trade wars. But amid the global mayhem, local economist Gary Hiles pointed out that Guam is—oddly but agreeably—in a bright spot. 

The tariff hullabaloo presented a rare, serendipitous occasion when we found consolation in the isolated perks of Guam’s status as an unincorporated territory—an arrangement that is generally far from ideal.

 “Guam is outside of the U.S. Customs system and the U.S. tariffs do not apply to imports to Guam,” Hiles said.

This doesn’t mean that our situation has improved or that our cost of living has become reassuring. It only means that the territory’s tariff autonomy insulates Guam from the impact of the tit-for-tat levies that ensued from Trump’s cavalier policy.

We are still subject to ridiculously high prices of goods coming into Guam—courtesy of the Jones Act—but Hiles said they would have spiraled even higher if Guam were under federal Customs jurisdiction. In other words, our situation may not be better, but it didn't get worse.

Guam sets its own tariff, which means the territory has the ability to schedule a made-to-measure rate that the local market can absorb.

However, Guam is not completely immune to the indirect repercussions of the reciprocal tariffs, given Guam’s dependence on imports. “Several items sold on Guam come from countries affected by the tariffs. 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," Hiles explained.

At any rate, Hiles said this knot is easy to untangle. “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.”

Another trump card—pun unintended—Guam can play is the General Headnote 3(a)(iv) of the U.S. Harmonized Tariff Schedule, which 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.”

Guam, of course, does not have a manufacturing industry to speak of. But every grand venture sprouts from a tiny seed of an idea. Sen. William Parkinson’s Bill 102-38, titled the Guam Tariff Advantage Development Act, 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.”

It sounds promising and concerning at the same time. The Northern Marianas had successfully done this. The commonwealth enjoyed its glory years in the 1980s and 1990s at the height of the billion-dollar garment industry. Sewn garments were shipped from Asian countries, assembled and packaged in Saipan factories and labeled "Made in USA."

Ironically, the sources of its success—immigration and wage autonomy combined with legal loopholes easy to abuse—were the cause of the industry’s ruination. The feds have since taken over.  

While Guam doesn’t have what the CNMI used to have, there’s a lot to learn from our sister-territory’s success and a lot to be wary of from its downfall.

It’s a matter of knowing and focusing on what we can control and navigating it properly to our advantage, rather than agonizing over the chaos in Washington, D.C.

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