David Salmon | Opportunities for Jamaica despite trade war

It is tempting to believe that the current international trade environment can only yield challenges for small developing countries like Jamaica. While major disruptions are to be expected particularly in traditional sectors such as tourism, there are opportunities for Caribbean countries despite the upheaval in the global economy.

The view proffered by many stakeholders is that this trade war is an opportunity for South-South collaboration. In other words, developing countries should increase trade amongst themselves. This is an attractive argument as the US has increasingly been seen as an unreliable trading partner.

This line of thinking is fraught with problematic assumptions. Developing countries are not a homogeneous group and not all emerging economies are losers from this trade war. For instance, Brazil has significantly benefited from it. Why? With countries like China avoiding American corn, soybean and beef exports, Brazil has filled the void. This has created a boon for Brazilian farmers.

However, this also means that the price of Brazilian soybeans has skyrocketed. The Financial Times reported that Brazil is now experiencing some of its highest export prices in years. Comparatively, the prices for American alternatives are substantially lower.

Adopting a posture of unmitigated South-South collaboration, would mean local companies paying higher prices for Brazilian imports versus securing cheaper alternatives from the US. Arguing for maintaining trade with the US is difficult given the Trump administration’s position.

Even so, this is a time to be strategic and Caribbean countries should aim to reduce their domestic costs of production as much as possible instead of adopting a full-throated ideological commitment to “third world solidarity.” Therefore, we should import goods from countries where prices have cratered, even if this includes the United States. This could potentially be used as a bargaining chip during negotiations with a mercurial US government.

NEARSHORE SUPPLY CHAINS

Notwithstanding that, there are opportunities for collaboration with other countries in the Global South that Jamaica and CARICOM at large can capitalise on. The Caribbean is surrounded by developing economies and Latin America is especially competitive in commodity exports.

The Trump administration has made it clear that they want countries to limit their engagement with China. Despite a pause in some tariffs, fees and other trade barriers are still in effect for shipping that passes through Chinese ports. This creates problems for the Caribbean as it is heavily reliant on Chinese goods and shipping services. Local companies that source raw materials from countries like Vietnam and Thailand may also experience difficulties as goods from these countries are often transshipped through China.

But this is an opportunity for the Caribbean to strengthen supply chain resilience by using Latin American substitutes for certain raw materials. For example, eight of the 10 largest coconut producers are from eastern and southern Asia with Thailand, Indonesia and the Philippines being leading producers. Other big producers include Mexico and Brazil.

Hence, Caribbean companies can look to these latter countries for coconut supplies. The Caribbean should not adopt an “all or nothing” sort of approach. While some goods can be sourced from the US, while others can be sourced from Central and South America.

ALTERNATE SOURCES OF FOREIGN INVESTMENT

The current trade war presents an opportunity to attract foreign investment from new markets. Southeast Asia is one of the regions that have been most affected by higher tariff announcements. At present, there is considerable instability in Asian markets as companies across the region assess their production strategies.

For the future, exports will remain a linchpin of the Caribbean’s survival given the region’s small market and limited resource base. Additionally, the US will continue to be a major market for the foreseeable future as it is difficult for companies to simply export to new markets on a whim. So, for the time being, countries that already rely on the US will likely continue to rely on the US.

That does not mean that Jamaica cannot benefit from this position. There has been an increasing focus on nearshoring as a potential strategy to manage supply chain instability. Nearshoring means the shifting of business operations to closer markets. To capitalise on companies interested in increasing nearshoring to the US, Jamaica can look to attract investment from Asian companies spooked by the current trade upheaval.

Jamaica does not have a trade surplus with the US. Therefore, if the Trump administration was to reimpose higher “reciprocal tariffs” paused earlier, it is unlikely that the country will have a higher tariff level than the 10 per cent that now applies to most economies.

In comparison, major exporting nations, such as Malaysia, would be hard hit by these tariffs. Thus, Jamaica and the Caribbean can pivot towards being a production location for companies from such countries. These companies would benefit from producing in a market closer to the US that does not have an acrimonious relationship with its government.

While Jamaica would benefit from expanding and diversifying its economy away from traditional exports. For example, electrical components and pharmaceuticals are some items that can be partly produced in the Caribbean which could benefit from Southeast Asian investment.

In the meantime, Jamaica should expand its warehouse and production capacity as more companies seek to produce and transship their goods through safer markets. This can start with beginning the construction of the Caymanas Special Economic Zone in earnest.

All crises create opportunities. This trade war is no exception. Caribbean nations have the potential to remake their economies or sink into complacency by relying on familiar industries. We have a choice. Time will tell what we do with it.

David Salmon is a public commentator, development specialist and a Rhodes Scholar. Send feedback to davidsalmon@live.com or on X @DavidSalmonJA.