Trump’s Trade War: An Unexpected Twist for French Overseas Territories

Amidst the escalating global trade tensions initiated by the United States, a peculiar detail has emerged concerning the treatment of French overseas territories. While the European Union braces for a standard 20% tariff on its exports to the US, these territories are facing a more differentiated approach, revealing a strategic calculation by the Trump administration.

Differentiated Tariffs: A Closer Look

Contrary to the uniform tariff imposed on EU member states, Guadeloupe, Martinique, Guyana, and Mayotte will only be subjected to a 10% surcharge by American authorities. this decision reflects Washington’s recognition of their unique economic status within the EU framework.

Despite their customs integration with the EU, the US acknowledges the distinct tax regimes these territories operate under. These DROMs benefit from a differentiated VAT system designed to bolster their economic growth, as stipulated by the tax code. Furthermore, each territory individually exhibits a trade deficit with the United States, a factor seemingly considered by the Trump administration.

The Formula Behind the Figures

According to Charlotte Emlinger, an economist at the Center for Prospective Studies and International Facts (CEPII), the methodology employed by the US government hinges on the trade balance between the US and each territory.

The formula used by Donald Trump to calculate these new customs duties is based on the trade balance. When the balance is favorable in the United States,the customs duties applied to products from territories with a loss of deficit are only set at 10%
Charlotte emlinger,CEPII

This approach aims to incentivize trade relationships where the US holds a favorable position,perhaps fostering economic growth within these territories while simultaneously benefiting American exports.

Reunion: an Exception to the Rule

However, not all French overseas territories receive the same preferential treatment. Reunion, despite sharing a similar tax status with guadeloupe, Martinique, Guyana, and Mayotte, faces a considerably higher tariff of 37%. This discrepancy stems from Reunion’s favorable trade balance with the United States, driven primarily by its exports of seafood.

Specifically, the export of “Less,” a fish species caught off the coast of Reunion, contributes significantly to this positive balance. In 2024, approximately 1,100 tonnes of this fish were harvested, with 30% destined for the US market. While the overall export volume may seem small,it is enough to trigger a substantial tariff increase under the Trump administration’s formula.

Saint-Pierre-et-Miquelon and French Polynesia: Unique Cases

The situation is further intricate by the cases of Saint-pierre-et-Miquelon and French Polynesia. These territories, while not part of the EU for customs purposes, also enjoy distinct tax statuses. Consequently, the US government has adopted a tailored approach to their trade relations.

French Polynesia will face a 10% tariff on its exports to the US,while Saint-pierre-et-Miquelon will be hit with a much steeper 50% tariff. This disparity, as with Reunion, is attributed to the existing trade balance between Saint-Pierre-et-Miquelon and the United States, which is heavily skewed in favor of the former due to fish exports like cod and crustaceans.

Limited Economic Impact Expected

Despite the varying tariff rates, economist Charlotte Emlinger anticipates a limited overall impact on the economies of these French overseas territories.

Maybe one or two local companies will need help but it is indeed anecdotal for local savings given the small sums that are at stake.
Charlotte Emlinger, CEPII

While individual businesses may require assistance to navigate the new trade landscape, the relatively small export volumes suggest that the overall economic consequences will be minimal. Though,the long-term implications of these differentiated tariffs on trade relations and economic development remain to be seen.