Puerto Rico aims to boost manufacturing amid US tariff shifts

Global trade tensions and shifting tariff policies have created opportunities and challenges for nations and territories seeking to reposition themselves in the global supply chain. For Puerto Rico, a US territory with a legacy in pharmaceutical and medical device production, these changes represent a moment of both uncertainty and promise. With the United States reevaluating its economic dependencies and seeking domestic alternatives, Puerto Rico is pushing to reestablish itself as a reliable and competitive manufacturing base.

Historical context of Puerto Rico’s manufacturing

Puerto Rico’s manufacturing base has evolved significantly since the mid-20th century. Once known for its garment and needlework industries, the island became a pharmaceutical hub thanks to Section 936, a federal tax incentive that encouraged mainland companies to set up operations there. At its peak, manufacturing accounted for more than 40 percent of Puerto Rico’s gross domestic product and provided thousands of jobs.

However, the expiration of those incentives in 2006 marked a turning point. Many companies left, contributing to a significant drop in overall manufacturing employment. From 1995 to 2005, Puerto Rico experienced nearly a 30 percent decline in manufacturing jobs. Yet during that same period, employment in pharmaceuticals and chemicals rose by more than 10 percent, showing resilience in high-value sectors.

Current economic landscape

Despite economic turbulence, Puerto Rico remains a leader in certain types of manufacturing. In 2020, the island accounted for nearly 20 percent of all US pharmaceutical and medicine exports. In 2024 alone, Puerto Rico exported close to $25 billion in goods, including $11 billion in vaccines and cultures, $7 billion in packaged medicaments, $1 billion in hormones, and nearly $1 billion in orthopedic and medical instruments.

However, the island faces serious structural challenges. Chronic energy outages and high electricity costs, driven by an aging grid and dependence on fossil fuels, limit its competitiveness. The Jones Act, which mandates US-flagged ships for domestic transport, adds to logistical expenses, making it more costly to ship goods to and from the mainland.

Government strategies and initiatives

To counter these obstacles, Puerto Rican officials have launched an aggressive campaign to attract manufacturers, particularly those seeking to mitigate risk from international tariffs or geopolitical instability. Invest Puerto Rico, the island’s economic development agency, has emphasized the territory’s unique status, being inside US jurisdiction while enjoying certain local tax advantages, to lure companies looking to reshore operations.

The government is also tackling energy issues by investing in renewable alternatives and battery storage. Efforts are underway to shift away from centralized generation and move toward a distributed grid, which could help stabilize supply and reduce costs over time.

Educational alignment is another focus. Institutions are updating curricula to meet the needs of sectors like biotechnology, aerospace, and advanced medical devices, ensuring that the local workforce is prepared for future industrial demands.

Puerto Rico stands at a crossroads. US tariffs on Chinese medical goods and the broader push to secure domestic supply chains have made Puerto Rico more attractive to companies wary of overreliance on overseas production. At the same time, global competition remains fierce. Countries like Ireland, Singapore, and Mexico continue to offer significant incentives and more stable infrastructure.

Still, with continued policy support, infrastructure investment, and educational reform, Puerto Rico has a credible chance to revive its manufacturing identity. The island’s proximity to the mainland, its skilled workforce, and its track record in pharmaceutical compliance present tangible advantages that few competitors can match.

Sources:
AP News – Puerto Rico manufacturing