[dropcap]F[/dropcap]or many years now it’s been clear that greater conflict between the United States and the People’s Republic of China was on the cards. Beijing has continued to enjoy rapid economic growth and, with it, the presumption it’ll one day overtake the United States as the world’s largest economy (in fact by some measures it already has). But this growth has also come with growing instability.
Alongside greater strategic tensions surrounding Beijing’s more muscular foreign policy, Beijing has tested the temper of Washington and other trading partners by its readiness to flout international conventions when it comes to trade. The greatest fan and critic of US President Donald Trump would both agree Trump’s temper is a risky thing to test. Now a potential trade war beckons.
So what does a US-China trade war mean for Saint Lucia and the Caribbean?
WHY IS IT HAPPENING?
Donald Trump is clearly a break from the norm when it comes to US presidents. A core theme of his presidential campaign declared the US was getting a bad deal on trade, and he’d fix it. This has seen recent sparring back and forth between the US and Beijing over steel tariffs, among other goods.
The idea of a full-blown trade war with China is not something any other recent president entertained. Sure there were episodes, like George W. Bush’s steel tariffs. But as is often the case, the Trump presidency here is considering charting new ground. Yet it’s also not completely unreasonable.
But Beijing cannot play an innocent party here as the Communist Party of China (CPC) racked up a ton of own goals well before Trump’s election. Chief among them, currency manipulation and flouting global norms that seek to guard against intellectual property (IP) theft.
Other nations like Singapore and Switzerland now outpace Beijing in currency manipulation, and some solid inroads have actually been made into stronger IP rules, but a lengthy history remains. And for a president seeking to ‘Make America Great Again’, settling old accounts is essential. But this trade dispute also has an undercurrent.
China has an eye on the future, especially surrounding Made in China 2015, a ‘grand plan’ policy by the CPC to shift China’s manufacturing sector from making cheap goods to cutting edge tech. Alongside steel, the Trump administration has sought to target tech goods, hindering China’s economic growth. Beijing has been belligerent, but there’s some gamesmanship on both sides.
THE TRADE OFF: GOOD AND BAD NEWS
We’ve often written at The STAR Businessweek about two pillars of the Caribbean economy: tourism and finance. We’ve also discussed the risks of not diversifying the regional economy in the long term, especially as right now there are emerging challenges in both sectors—from Virtual Reality in tourism to the ongoing Panama/Paradise Papers saga in finance—that could pose economic threats.
But within this particular area, Saint Lucia and the Caribbean enjoy a relative position of strength. At least in theory, as neither tourists’ ability to visit, nor people’s capacity to bank regionally will be upturned overnight by a trade war. An advantage compared to the US or Chinese steel sector. Controversial sectors, like a now unlimited-application CIP, would also be ancillary in a trade war.
But in practice, if the trade war reduces disposal income in American households used for an annual holiday, that could pose a real issue. Post-GFC Saint Lucia has seen a slowdown in tourism over the years, and even when a natural disaster like a hurricane totally misses our island, some tourists unfortunately misunderstand that a hurricane doesn’t impact the whole Caribbean.
There are difficult decisions for the Chastanet government in such a scenario like a trade war.
Saint Lucia is an open economy, and it’s economically advantageous that it is—in the good times.
When global headwinds change, Washington and Beijing can put up tariffs (and while it will be painful) also shrug it off.
But a trade war would mean reforms like the cut of the 2012-introduced VAT from 15% to 12.5% in 2017 would appear minor compared to major decisions on the table.
THE SIDE EFFECT OF A TRADE WAR
The irony for the Trump administration is that Beijing may increasingly hinder its own growth. Recent years have seen President Xi Jingping’s party clamp down on civil freedoms and business regulations, even placing an effectual ban on crypto trading like Bitcoin. And Xi’s power-grab earlier this year to become ‘president for life’ may ultimately make CPC rule more unstable.
The CPC can point to Washington and cry foul all it wants about instability, but these activities and adventurism in the South China Sea may be the real threat to China’s growth long-term.
But China also recognises its greater engagement in the Caribbean will irritate Washington.
This could prove significant in 2018, especially with the Republic of China (Taiwan) diplomacy issue growing locally. Greater engagement by Beijing here would disturb Washington.
It shouldn’t go unnoted that it will annoy the Caribbean family too, if its not done for any reason other than just to play politics and ‘poke the bear’ in Washington. Caribbean nations are not chess pieces and, save for perhaps the occasional spurt of Castro-era remembrance from Cuba, the region has no interest in harkening back to the days of Cold War geopolitics. But if Beijing ultimately backs down to Washington in trade, it will begin looking to apply pressure elsewhere.
IS IT TRUMP OR TREND?
For nations like Saint Lucia, navigating a potential battle between the goliaths is like being a referee in a boxing match. Castries will need to stay close enough to the action to have a clear voice in the proceedings, but far back enough that it doesn’t get hit. Given his controversial nature, Trump is understandably a lightning rod many people cite as the source of numerous regional problems.
But so far the US government under the Trump administration has largely continued ‘business as usual’ in the Caribbean. While Trump has returned the US to a more adversarial relationship with Havana—and CARICOM condemned him for his alleged comments surrounding Haiti and other nations in January of this year—the Trump administration’s focus has otherwise been chiefly in domestic politics, the Middle East and Asia. This is unlikely to change in the near future.
The Caribbean would welcome a US president who was more attuned to Latin America. With Latinos a rapidly growing voting blog, and the 2016 election seeing a candidate pool with two sons of Cuban immigrants in senators Marco Rubio and Ted Cruz, and two fluent Spanish speakers in Rubio and former Florida governor Jeb Bush, the odds are strong it’ll happen in the future.
But even if the US were to see a first-generation American of Saint Lucian parents sit in the Oval Office, US policy is unlikely to change greatly, just as Barack Obama’s Kenyan heritage didn’t markedly alter the US-Kenya relationship. US trade goes beyond any one leader: a Hillary Clinton or Bernie Sanders presidency would’ve seen economic similarities to Trumps.
AT THE EDGE
Ultimately, this current stand-off between Washington and Beijing likely won’t be borne out in a full trade war. Beyond Trump and Xi, both the US and China’ political class have too many figures keen to see cooler heads prevail. But this is not a guarantee it won’t happen, or it won’t happen again in future. As the Brexit era in the UK has shown, no old certainties are any longer certain.
That’s why this is an important moment for old certainties locally to be revisited. Like the one that says the Caribbean will have a strong regional identity and economic integration ‘one day’. The impact of a full trade war could come sooner rather than later, and really hit the Caribbean hard.
But a region more closely integrated, and set to stand together, could better guard against it.
