Puerto Rico lures manufacturing to lift economy facing Trump's tariffs

Malaysia Sun

16-05-2025

SAN JUAN, Puerto Rico: As the global trade war deepens, Puerto Rico is seizing the moment to lure international companies to relocate manufacturing operations to the U.S. territory, where they can avoid tariffs.
Government officials are actively courting businesses in sectors like aerospace, pharmaceuticals, and medical devices, promoting Puerto Rico's tariff-exempt status. "The tariff issue is a controversial one, but for Puerto Rico, it is a great opportunity," said Governor Jenniffer González.
Puerto Rico is hoping to revive its once-thriving manufacturing sector, which still accounts for nearly half of its GDP but has struggled in recent years. The island is emerging from a historic bankruptcy and continues to grapple with power outages and potential cuts in federal funding under the Trump administration. Federal funds currently represent more than half of the island's budget.
According to Ella Woger Nieves, CEO of Invest Puerto Rico, officials have identified 75 to 100 companies that could be interested in relocating to the island. "This is the moment to plant those seeds," she said, noting that site selectors have been brought to Puerto Rico for tours highlighting the island's existing infrastructure and the benefits of operating in a tariff-free environment.
Invest Puerto Rico and other government agencies plan to make nearly 20 more trips this year to pitch the island as a prime business destination.
In the past, Puerto Rico's economy thrived on needlework and textiles, later shifting to chemicals, electronics, and pharmaceuticals. A federal tax incentive in 1976 attracted major pharmaceutical companies, but its gradual repeal in the 1990s led to a 30 percent decline in manufacturing employment.
Despite the downturn, pharmaceuticals and medical devices remain key industries, with Puerto Rico accounting for nearly 20 percent of total U.S. pharmaceutical exports in 2020, according to the U.S. Bureau of Labor Statistics.
In 2024, the island exported almost US$25 billion worth of goods, including $11 billion in vaccines and $7 billion in packaged medicaments, according to the Observatory of Economic Complexity.
Sergio Marxuach, policy director at the Center for a New Economy, said Puerto Rico's focus on pharmaceutical and medical device sectors makes sense given its established infrastructure. "If I were advising the government, begin there because you already have a footprint," he said.
Marxuach added that Puerto Rico could also target defense and security contracts, such as manufacturing drones or underwater surveillance systems.
However, significant challenges remain. Puerto Rico's energy infrastructure is unreliable and costly, a fact acknowledged by Robert F. Mujica, executive director of the federal control board overseeing the island's finances.
Woger Nieves said officials are transparent about power issues and offer potential solutions, such as cogeneration and renewable energy. "Power doesn't have to necessarily be an impediment," she said.
But Marxuach cautioned that those alternatives are often expensive and that Puerto Rico must address structural issues that add costs for investors, such as the Jones Act, which requires goods shipped to the U.S. to be carried on U.S.-flagged vessels.
Meanwhile, many CEOs remain hesitant to make long-term commitments amid ongoing uncertainty over U.S. trade policy. "The short-term reaction of many CEOs and companies is basically to wait and see," Marxuach said.
Trump has suggested he might keep some tariffs in place while negotiating deals with trading partners, using "strategic uncertainty" as leverage. This has complicated Puerto Rico's efforts to attract companies.
"We are competing with Vietnam, South Korea, Malaysia, Singapore — countries that already have advanced manufacturing facilities," Marxuach said. "It's not a slam dunk."