Impact of the 2025 U.S. Global Tariff Hikes on Barbados

This policy paper evaluates the macroeconomic consequences of the 2025 U.S. global tariff hikes on Barbados. With a 10 percent tariff imposed across all imports, the U.S. action poses multidimensional risks to Barbados as a small, open economy with deep trade and tourism linkages to the U.S. market.

Goods exports to the U.S. are projected to contract by $15.6–17.8 million due to higher landed prices and increased competition from alternative suppliers. Applying conservative multipliers, result in real GDP losses of $23.4 to $26.7 million, equivalent to 0.23 to 0.26 percent of GDP. 

In the tourism sector, where the U.S. contributes roughly one-third of all long-stay visitors, modeled declines of 7.5 percent (baseline) to 15 percent (severe scenario) in U.S. travel spending are estimated to produce GDP losses of 1.04 to 2.07 percent, respectively. Taken together, the total GDP impact (losses) could range from 1.27 to 2.33 percent under the adverse scenario, depending on scenario severity and reflects both direct and multiplier-adjusted effects across export and tourism. 

The inflation outlook has deteriorated. Tariff-driven cost increases, particularly in food and energy, are expected to raise Barbados’ total inflation to 3.2–3.7 percent in a tariff-only scenario and up to 4.5 percent if shipping fees are also imposed. These price pressures are transmitted through high U.S. import dependence (30 percent for food, 85 percent for fuel), exacerbated by fragile Caribbean shipping networks. Food inflation may rise by up to 3.2 percent, and energy inflation by 4.7 percent, straining household budgets and dampening real incomes.

Barbados’ monetary policy response is constrained by the fixed exchange rate regime. With the Barbados dollar pegged to the U.S. dollar at 2:1, the Central Bank cannot rely on currency depreciation to absorb shocks. Rising international interest rates could help contain global inflation but would impose costs on the tourism and construction sectors and raise debt servicing burdens. Foreign reserves remain strong at $3.4 billion, or 32.4 weeks of import cover, as at end-March 2025, providing some insulation but limited flexibility.

On the fiscal side, revenue pressures may emerge as import values fall and tourism activity softens. The Government’s strong fiscal position—with a FY2024/25 primary surplus of 3.5 percent of GDP—is expected to come under stress. Public debt, which had declined to just over 100 percent of GDP, could rise back to 108–112 percent under stress scenarios. Additional costs may arise from food and energy subsidies, estimated at $85–100 million, and stabilization transfers to vulnerable households.

In summary, the 2025 U.S. tariffs introduce non-trivial risks to Barbados’ near-term growth, inflation stability, and fiscal sustainability. While Barbados remains resilient due to robust reserves and sound public finance reforms, this shock underscores the urgency of export diversification, supply chain de-risking, and deeper regional integration—especially in food security, logistics, and tourism market development.