Tracing the economic impacts of the 2025 US tariff increases and evaluating possible responses: An analysis for Papua New Guinea

Restrictions on global trade can contribute to adverse economic outcomes in developing countries. Perverse outcomes include reduced export opportunities and higher input costs for essential goods. Policymakers in Papua New Guinea (PNG), as in other developing countries across the world, have therefore been concerned about global trade uncertainty as geopolitical tensions and protectionist policies have escalated throughout 2025. In April 2025, the United States (US) implemented a new tariff policy that included a baseline 10% tariff on goods from all countries, including PNG, along with higher "reciprocal tariffs" on countries with large trade deficits. The PNG government confirmed it would not retaliate but would instead pivot trade toward Asia-Pacific partners such as China, Indonesia, and Japan. In July 2025 PNG’s exports to the US were subjected to a 15% reciprocal tariff under an updated U.S. tariff schedule. In the ensuing months, some countries managed to finalize bilateral trade deals with US and reduced the tariff rates, while others are still under negotiations. According to the US trade policy 2025, the increment in reciprocal tariff on PNG is a result of the country’s failure to take sufficient steps to align with the US (The White House, 2025). In this note, we provide a rapid assessment of the potential impacts of US tariff hikes on PNG’s economy, specifically on trade, GDP, and household income. We consider the two following scenarios: Scenario 1—only US imposes additional tariffs (10 percent, 15 percent, and 30 percent), and PNG does not reciprocate. Scenario 2—PNG reciprocates with equivalent tariffs on the commodity import from the US. This note provides a rapid assessment of impact of US tariff policy on key macroeconomic indicators of PNG. This also helps derive quick policy insights into whether it would be advantageous for PNG to respond with higher tariffs or to accept the US’s higher tariff. Though US has imposed a 15% tariff on PNG’s export to US, due to uncertainty regarding the level of protectionism among the countries, this analysis also considers multiple tariff rates to understand the extent of economic losses in PNG due to relatively higher US tariff in the future.