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World trade in the Caribbean context

Thursday, June 7, 2018

The burgeoning cold war between China and the United States continues to threaten the stability of world trade.

For some time now, we have observed the exchanges between two of the world’s largest economies with caution, noting the hostile measures that have steadily escalated.

The Trump administration’s threats of tariff escalations in January 2018 and the retaliatory list produced by China could affect billions of dollars in world trade.

In April 2018, the US signed an order that made it possible for a 25 per cent tariff to be imposed on as many as 1,500 Chinese products entering the country. These tariffs would target high-tech products highlighted in China’s Made in China 2025 plan, including medicaments, printing and sewing equipment, steel and aluminium. China has threatened to impose an across the board 15 per cent tariff on a 128 popular products (including fruit and fruit derivatives, pork, aluminium and steel) imported from the United States.

Thus far, these tariff measures are just threats but should they be realised, they could have a significant impact on world trade by disrupting global supply chains. Roberto Azevêdo, director-general of the World Trade Organisation, in his remarks on the 2018/2019 economic outlook, said that although there is anticipated economic growth for both developed and developing countries, “a breakdown in trade relations among major players would derail the recovery that we have seen in recent years, threatening the ongoing economic expansion and putting jobs at risk”.

On one hand, the United States is T&T’s largest trading partner, accounting for 42 per cent of our country’s exports and 34 per cent of imports.

China, our third largest supplier (eight per cent), is the largest economy in the world on a purchasing parity basis (IABD, 2016), and contributes significantly to foreign direct investment inflows into the region.

With the Caribbean Basin Initiative (CBI) set to expire in 2020, T&T—along with the other Caribbean Community (Caricom) member states—is seeking to secure preferential access for a select number of exports into the United States.

The CBI is “intended to facilitate the development of stable Caribbean Basin economies by providing beneficiary countries with duty-free access to the US market” (Office of the US Trade Representative).

The goods relate to products grown and produced in CBI countries—of which T&T is one—and include procurement opportunities, trade and investment financing, and technical assistance programmes. It also includes, for countries with a Tax Information Exchange Agreement, a CBI Convention Tourism Tax Credit and a Foreign Sales Corporation status.

On the other hand, China has invested heavily in the region.

So far, the capital flows from China to Caribbean territories largely comprise development aid, in the form of loans to fund infrastructure projects built by Chinese enterprises (Bernal, 2014).

China has recently become the third largest source of foreign direct investment (FDI) in the world and is a major source of development aid for developing countries, including those in the Caribbean. The capital flows it provides have taken the form of loans to governments to finance infrastructure projects and to expand production of oil and other raw materials.

There have been indications of interest in further investment in the Caribbean from Chinese enterprises and entrepreneurs which is mainly driven by China’s foreign policy.” (IADB, 2016).

In May 2018, a T&T delegation led by Prime Minister, Keith Rowley, made an official visit to China. While there, Prime Minister Rowley made it clear that Chinese foreign direct investment is important to the region and invited a fact-finding delegation of government officials, university scholars, tech professionals and business people to explore opportunities for partnering with our country.

This visit was significant, as T&T became the first Caribbean nation to sign on to China’s One Belt One Road (OBOR) initiative. Launched in 2013, OBOR is focused on creating and improving links, trading routes and business opportunities with China.

Director-General Azevêdo noted that the stronger economic growth we have been seeing—in both developed and developing countries—is forecast to continue, but he was cautious about the negative impact that the possible dramatic escalation in trade restrictions could have on that growth. It brings to light several questions we should ask ourselves in the current economic climate, and in our trade policy engagement as a nation.

Thus far, China’s investment in the region has taken the form of construction projects but this latest visit signals interest in attracting FDI in the high technology industry.

Furthermore, the desire to extend preferential access for Caribbean exports to the United States would mean maintaining good relations in other aspects of international trade relations. Should these tensions rise, how would it affect Trinidad and Tobago’s relationship with either trading partner?

In the not-too-distant past, we have seen the impact that US embargoes have had on our relations with third states like Cuba. For the small and vulnerable economies that comprise the Caribbean, can we simply “pick a side”?

These questions may change shape as events on the international front unfold, but for the time being, it is a situation we must watch closely to gauge any impact upon our own economy.

T&T Chamber of Industry and Commerce


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