Wesley Vanriel | Business strategies for a complex trade environment

The imposition of across-the-board tariffs by the United States on all trading partners marks a major shift in the international trade environment. The Bretton Woods trading system, initiated by the United States (US) at the end of World War II, became the centrepiece of the post-war economic order and culminated in the establishment of the World Trade Organization (WTO) in the 1990s.

Now, the entire architecture of world trade, based on ‘free trade’ ideas, has been in effect dismantled by its very architects, and a ‘new protectionism’ motivated by a desire to roll back the impact of globalization seems poised to become the dominant theme. For small states like Jamaica, the implications can be adverse, but the attendant risks can be managed by appropriate strategies.

Tariffs on exports to the US have traditionally been fairly low, and the region enjoys tariff-free treatment for over 5,800 products under the Caribbean Basin Initiative which is scheduled to expire in 2030. With the new tariff regime, the pendulum has swung from opening of the US domestic market to its closure. However, the main problem for regional exporters has been not surmounting tariff barriers, but taking advantage of market opportunities – in other words more of a ‘supply-side’ problem.

The general picture of Jamaican exporting to the United States in recent decades has been one of decline of traditional exports and inadequacy of ‘non-traditional’ exports. For example, bauxite and alumina among our leading exports to the United States appear to have been at the tail end of their life cycle for decades, with the traditional North American producers like ALCOA, ALCAN, Kaiser, Reynolds and Revere downsizing or exiting the Jamaican industry. The 1.4 million tonnes of bauxite produced in 2023 compares with over 14 million tonnes 50 years ago. A brief boom in apparel exports under the CBI and 807/freezone arrangements in the 1980s and 90s ended with the growth of competing Mexican ‘maquiladoras’ under NAFTA.

MAJOR TRADE PARTNER

To assess exposure of Jamaican exporters, the composition of exports to the US must be analysed. The US is Jamaica’s major trade partner, accounting for 60 percent of exports and about 40 percent of imports. Total merchandise exports to the United States in 2023 were approximately US$ 1.01 billion. Bauxite and alumina are the main ‘traditional’ exports, accounting for roughly one-third of export earnings; agricultural products e.g. yams, bananas and papaya, manufactured products – e.g. food and beverages, chemical, cosmetics and pharmaceutical products, wearing apparel and are among the ‘non-traditionals’. These total about US$ 200 million. Since the tariff has the effect of increasing the price of the imported product, the main question is what US products compete with the Jamaican exports.

Jamaican exports to the United States tend to be ‘niche’ products as many are speciality or exotic – e.g. coffee, alcoholic and non-alcoholic beverages – or target specific markets e.g. Jamaican diaspora. But the big earners of American dollars for Jamaica are services, rather than goods. Overall export earnings from merchandise trade pale in comparison to Tourism earnings of over US$4 billion. Although the US is the main tourist market, as the greatest number of tourists come from there, the tourist trade is not directly impacted by US tariffs as no goods cross the US border.

This analysis suggests that the bulk of Jamaican exports to the United States are either raw material transferred within multinational corporate supply chain, e.g. bauxite or alumina from an American-owned subsidiary in Jamaica to a parent plant in the US; or niche products that have few domestic competitors or may not be highly sensitive to small price changes; or are services that do not attract tariffs. Having said that, the remainder may be a small group of Jamaican exports that are seeking to penetrate the US market in the face of competition from US producers.

COMPETITIVE ADVANTAGE

The competitive environment faced by most Jamaican exports in the United States is such that Jamaican products are likely to enjoy some competitive advantages. First, most exports are products that do not have a great deal of competition from American suppliers; second many Jamaican non-traditional products do not have high barriers to entry in the industry, so that new startups are frequent; thirdly, the US consumer of Jamaican products, especially diaspora, tend to have brand loyalty; fourthly those exports that are marketed as ‘genuinely Jamaican’ enjoy supply chain advantages such as access to local ingredients; and finally, because of the speciality status of many non-traditionals, substitution may be difficult.

The market profile of most Jamaican exports to the United States render them relatively insensitive to a low tariff. However, analysis of individual products and markets is required to assess specific impacts, taking into account the type of goods, the elasticity of demand, marketing strategies and other factors.

Appropriate survival strategies in the current circumstances should be based not on low-cost production but on product differentiation. This means focus on uniqueness of the Jamaican product and exploiting the well-established Jamaican brand identity. The most successful exports are likely to be those that target niche markets and aim at low overall market share.

Exporters should continue to focus on product differentiation, exploiting the ‘Brand Jamaica’ image while seeking more geographically diversified markets including under-served segments in Europe, Africa, Latin America and Asia and Middle East. The perennial problem of being a ‘country of samples’, however, has to be tackled.

National and regional state entities like JAMPRO and CARICOM can play a highly instrumental role in assisting exporters to focus their marketing strategies in this direction through enhanced trade promotion and facilitation services, including the strengthening of intellectual property safeguards.

Wesley Vanriel is an economic consultant who has worked in public and private sector development projects. Send feedback to columns@gleanerjm.com