Long-term Effects of US Tariff Increases on CAPDR

Alexander Subramaniam Beames

No 2026/125, IMF Working Papers from International Monetary Fund

Abstract: In a series of declarations throughout 2025 and into 2026, the United States announced higher tariffs on nearly all imports from most countries. The countries that make up the CAPDR region (Costa Rica, Dominican Republic, Guatemala, Honduras, Nicaragua, Panama and El Salvador) are affected through sizeable direct trade linkages with the United States, and through indirect trade linkages with third countries. This paper explores the potential long-term economic effects of these tariff increases on CAPDR using a multi-region multi-industry model of the global economy. The modelling exercises suggest that CAPDR member countries will experience falls in real GDP to varying degrees, with the severity of the effect closely linked to direct export exposure to the United States. The most vulnerable industries are heavily trade-exposed manufactures, although exemptions – most importantly for textiles & apparel – may provide some scope for trade diversion to offset some of the GDP losses. Although ongoing legal challenges have introduced additional uncertainty regarding the ultimate extent of tariff changes, the results in this paper will remain broadly valid providing the tariffs remain in place.

Keywords: International trade; Trade policy; Trade models; Input-Output analysis; Central America; IMF working papers; CAPDR region; CAPDR member country; tariff change; model of the global economy; vulnerable industry; Tariffs; Exports; Imports; Trade balance; Global (search for similar items in EconPapers)
Pages: 34
Date: 2026-06-19
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