PHILIPSBURG — The trade war US President Trump ignited by imposing tariffs on imports will have a serious effect on the economy of St. Maarten. This appears from a report entitled Macroeconomic Implications of the Announced US Tariff Measures for the Monetary Union, published by the Central Bank of Curacao and St. Maarten (CBCS).
The Central Bank foresees “more expensive groceries and a decline in tourism from the United States and from Europe.”
The report notes that St. Maarten’s economy has strong ties with the United States. The US is good for 50.5% of the trade between the two countries and for 45.1% of the import of goods. The remaining imports come from the Caribbean (35.7%), the Netherlands (4.2%), Central and South America (3.8%) and the rest of the world (11.2%).
“The trade war has triggered global concerns about a potential ripple effect,” the CBCS-analysis states. Potential consequences are a disruption of global supply chains and higher inflation. The CBCS labels the situation as “highly uncertain.”
The tariffs will result in higher prices for American consumers and they will also create upward pressure on inflation across the monetary union. “This will reduce disposable income, weaken domestic demand and dampen economic growth,” the analysis states.
Americans will see their purchasing power go down and that will potentially reduce the demand for international travel, an effect that will hurt St. Maarten’s tourism industry.
In the most optimistic scenario (whereby trade partners do not retaliate against the US tariffs) gross domestic product in St. Maarten will decline by half a percent to 2.1% this year. In 2024 GDP-growth was 3.5 percent; it will fall to 2.6% this year and to 2 percent in 2028.
Government revenue will also go down and exports are expected to decline. Inflation will increase by half a percent.
If trade partners do retaliate (which is already happening) inflation in the US will increase to 4 percent while real GDP growth in St. Maarten will fall by 0.8 percent to 1.8%. Inflation will increase by a full percentage point.
“The US protectionist trade policy poses a tangible risk to the economies of St. Maarten and Curacao,” the CBCS states in its analysis. “Curacao and St. Maarten will experience slower economic growth, higher inflation and weaker domestic demand due to reduced tourism and declining disposable income.”
St. Maarten has however options. “To mitigate the tariff-effects it should diversify its supply chain and reduce its reliance on the US market.” The analysis suggests strengthening ties with other trade partners like Latin America and the Caribbean.
Another option is the promotion of local production, especially in agriculture and renewable energy. “This can reduce external dependencies and contribute to employment and economic growth.”
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