Trump's global tariffs pose risks to Maldives economy

US President Donald Trump's recent announcement of higher tariffs on imports has caused disruptions in the global economy and stock markets. The US government plans to impose tariffs ranging from 10% to 48%, citing unfair trade practices by other nations. This announcement has raised concerns about the potential onset of a trade war, with major economies such as China and Canada already retaliating by increasing tariffs on US goods.

Economists are now worried that international trade could slow down, leading to a potential global economic recession. The Maldives, which has a small and open economy, is particularly vulnerable to global economic shocks.

Tourism is a significant sector in the Maldives, contributing a substantial portion of the nation's GDP and foreign exchange earnings. A global trade war, coupled with a slowdown in the economies of key tourism markets such as China, the UK, and the EU, could result in fewer tourists visiting the Maldives.

If inflation rises globally, and consumer spending declines in affected countries, tourist numbers to the Maldives may fall. This, in turn, would lead to a decline in foreign exchange earnings, making it harder for the Maldives to meet its foreign expenditure needs, including repaying foreign debt and importing essential goods.

Commodity prices in global markets are expected to rise due to the tariffs imposed by the US on major importers like China and India. As a result, inflation in the Maldives could also increase. While the depreciation of the dollar may provide some relief, the price of imports is expected to rise as foreign exchange earnings decline, making it more expensive to obtain dollars in the local market.

Inflation has already been rising since late last year, with the rate surpassing 5% in early 2025. Experts anticipate that this number will continue to climb due to the ongoing global economic changes.

The Maldives' external debt is expected to reach $600 million this year and could rise to $1 billion in the near future. While a weaker dollar could theoretically reduce the cost of debt repayment, the Maldives' ability to raise dollars from tourism is a major concern. If tourism revenues fall due to the global economic slowdown, the depreciation of the dollar may not provide the expected benefits.

Additionally, the depreciation of the dollar will increase the cost of importing goods from countries using currencies such as the Japanese yen and Indian rupee. This could result in higher costs for essential imports.

International financial institutions like the International Monetary Fund (IMF) and the World Bank have classified the Maldives as a high-debt-risk country, and Trump's new tariff policy could exacerbate the risks to the nation's economic stability.

Experts warn that the Maldives could face greater economic challenges if the global economic changes stemming from Trump's tariff policy continue. Economists have suggested several measures to mitigate the impact:

However, there may also be some benefits for the Maldives. With tariffs on fish products imposed by the US on competing nations, there may be an opportunity for the Maldives to increase its fish exports. Maldives' fish products can be sold at more competitive prices in international markets due to lower tariffs compared to other competitors.

Experts emphasise the importance of focusing on increasing domestic productivity, particularly in sectors like fisheries, to capitalise on the opportunities presented by the current global trade dynamics.