Cook Islands braces for economic ripple effects from US tariff increases

Despite limited direct trade, the Cook Islands fears US tariff increases could indirectly impact the local economy through global supply chain disruptions and increased costs, particularly in tourism and imports.

Cook Islands has been hit with a 10 per cent basic tariff on all foreign imports by the United States, imposed by President Donald Trump last week.

The tariff has prompted concern from the Cook Islands Chamber of Commerce, who warn of potential economic ripple effects, despite the Cook Islands' lack of direct trade with the United States.

Chamber chair Addrienne Hosking-Tinirau said they are concerned that the ripple effects of the US policy could disrupt global supply chains, raise import costs and place additional strain on key sectors like tourism and retail.

"We don't import a significant volume of goods directly from the United States, but we are part of a global trade system that's interconnected. Any shift in major trade policies - especially from the US - can cause pricing and availability issues that eventually reach our shores," Hosking-Tinirau said.

Chief government economist Tristan Metcalfe says that while the recent US tariff announcement has drawn plenty of attention, its impact on the Cook Islands will be relatively small.

"The announcement has certainly drawn plenty of attention. Thankfully, the impacts on the Cook Islands are likely to be relatively small, if they materialise at all," said Metcalfe, the director of the Economic Planning Division at the Ministry of Finance and Economic Management.

This is because US trade with the Cook Islands is quite small, according to Metcalfe. In 2024, the Cook Islands imported almost $8.3 million worth of goods from the US, while exporting only $90,000.

"Combined, this is less than one and a half per cent of our GDP," he said.

Teatu Siva Tauia and Tepania Puiki battled for about four hours to reel in this 113kg bluefin tuna. The Cook Islands The Cook Islands exports to the United States include seafood (particularly tuna), fruit juices, coral, shells, live ornamental fish, pearls, and articles of natural or cultured pearls. Photo/File/Kolee Tinga/Pukapuka TV

According to Metcalfe, overall, the biggest losers from this trade policy will be American consumers, "as they will face higher prices (in some cases, much higher prices) - which is why very few countries take this kind of action".

"This may impact the Cooks through less discretionary income for people to take a holiday to the Cook Islands (in 2024 we welcomed just over 7000 American visitors), though the impact on that market is likely to be small."

Chamber of Commerce's Hosking-Tinirau said the Cook Islands relies heavily on imports for consumer goods, many of which originate in or pass through trade hubs that have strong economic ties with the United States, including New Zealand and China.

"The increased tariffs could lead to higher costs for manufacturers and exporters in those countries, with the potential for those costs to be passed down the supply chain," she said.

"Even if we're not the direct target, the inflationary effect of tariff wars has a global reach. Local importers and consumers are already experiencing price fluctuations in shipping and some product categories."

Watch Cook Islands Prime Minister Mark Brown discuss the US trade tariffs, which took effect on Sunday evening, local time.

Hosking-Tinirau said they are also particularly concerned about the impact on fuel prices and freight costs, both of which are critical for sustaining the tourism-driven economy.

"If fuel becomes more expensive due to global price shifts, we'll see increased costs in everything from flights to food. That affects our competitiveness as a tourism destination.

"With tourism accounting for around 60 per cent of GDP, any reduction in visitor numbers or spending could pose a serious challenge to local businesses."

Meanwhile, Metcalfe questioned how the US government determined a 10 per cent tariff, given that the Cook Islands does not charge tariffs on US goods.

"The Cook Islands does not charge tariffs on US goods - or many true tariffs on any trading partner (those we do levy are restricted to things like pearls, some very limited examples of seasonal vegetables, used motor vehicles and motorbikes with larger engines)," Metcalfe said.

Fuel tanktainers onboard a cargo vessel at Avatiu harbour. Cook Islands Chamber of Commerce is concerned about the impact of US tariffs on fuel prices and freight costs, both of which are critical for sustaining the country's tourism-driven economy. Photo/Cook Islands News

"It is unclear how the US Government has determined that US exporters to the Cook Islands face a 10 per cent tariff on their exports."

Metcalfe further explained that excise taxes are levied on a range of goods, regardless of their source, including tobacco, alcohol, fuel and sugar-sweetened beverages (soft drinks).

"As we don't produce many of these things locally, they look a bit like a tariff, but are distinct," he said. "They look like a tariff as where there are no local producers (such as for tobacco) these excises are only levied on imports of the product - however, if there were local production, it would be subject to the duty as well."

"We also levy VAT on imported goods (irrespective of which country they come from), over a threshold, to balance the playing field as if those goods were bought from sellers in the Cook Islands."

This article was first published by Cook Islands News.