Trump’s Economic War on China – Caribbean Collateral Damage
Ambassador Curtis A. Ward
During his presidential campaign, candidate Donald Trump left little doubt about his disdain for China’s emerging global economic power. He not only framed this in the context of U.S. bilateral trade disadvantages with China, but also what he perceived as China overtaking the U.S. in global economic and trade dominance. Trump promised his supporters he would act against China to reverse this trend. Having now acted to keep those promises, questions arise as to what extent president Trump’s tariffs on steel and aluminum, aimed primarily at China, will have unintended consequences. Trump’s tariffs, if applied across the board as announced initially, could spark a trade war with U.S. allies more so than with China.
Ironically, China is not the top steel exporter to the United States, trailing U.S. allies Canada, Brazil, Japan, and South Korea. Thus China could choose to respond with modest measures and watch other mostly affected U.S. trade partners respond more aggressively with robust counter measures against selected U.S. goods and services. This could be the beginning of a trade war and a downward spiral for the global economy. The economic repercussions of a global trade war would be devastating for the fragile economies of the Caribbean and other regions – Caribbean collateral damage.
Donald Trump’s use of a shotgun approach to U.S.-China trade though seemingly amateurish should not be surprising. My recent article, “Cuba and Venezuela in Trump’s Cross-Hairs,” (The Ward Post – (02/03/2018), focused primarily on Secretary of State Rex Tillerson’s main objective of isolating Venezuela during his trip to Latin America and the Caribbean (LAC). However, my reference to his categorization of China in LAC as “predatory” should have raised a red flag among hemispheric leaders. Tillerson warned governments of the region against cozying up to China. He characterized China as offering “an attractive path to development” which “in reality, often involves trading short-term gains for long-term dependency.”
Tillerson noted that “China’s offer always comes at a price” which he described as “state-led investments, carried out by imported Chinese labor, onerous loans, and unsustainable debts.” He said the China model extracts precious resources to feed its economy. In reference to China (and Russia), Tillerson warned that Latin America does not need “new imperial powers that seek only to benefit their people.”
In an effort to disparage China’s role in LAC, Tillerson suggested, perhaps inadvertently, that the region having grown accustomed to the rapacious characteristics of old imperial powers should be satisfied with that relationship. Tillerson offered no public commitment that the old imperial powers, the U.S. included, would offer an alternative to China’s economic overtures in the region. Reality is, the region is starved of foreign direct investments from old imperial powers and Chinese investors are filling the void. I had advanced the idea that China’s economic and geopolitical engagement with LAC was likely to be on the agendas for Tillerson’s meetings with leaders in the countries visited. I haven’t seen any public statement either way, but actions speak louder than words, and sometimes silence can be even louder.
In another article, “Hopes, Fears, and Challenges for 2018 – the Global Landscape,” (The Ward Post – 12/29/2017), I noted that the increased influence of China and Russia in the Western Hemisphere will raise geopolitical tensions between the U.S. and countries in the region that are getting too close to China. I made the point, there was increasing fears the U.S. under Trump will act in its own perceived interests regardless of the implications for affected states or the international community at large. I also noted Trump’s actions would lead to further erosion of trust in the U.S.’s ability to act responsible to further LAC interests. These tensions are now being manifested in reckless policies and actions emanating from the Trump administration.
In January 2018, invoking the protection of U.S. national security, Trump imposed tariffs on imports of washing machines and solar panels from China. He used a section of the Trade Act (section 201), not used by any U.S. president since 2002 to justify his action. Importantly, by increasing the prices of two Chinese products that are manufactured with significant aluminum input, Trumps tariffs on these manufactures will decrease global demand for aluminum. At a minimum, by depressing the sales of these targeted Chinese products in the large U.S. market, China will have a lesser incentive for sourcing alumina from countries such as Jamaica. Now with an across-the-board 10% tariff on aluminum the impact will be far greater.
We already know that steel and aluminum exporters Canada, Mexico, and Brazil are talking tough against Trump’s proposed tariffs if implemented as initially announced by the president. We expect their responses will be measured according to the respective effect on their exports. Canada and the European Union already have signaled they will retaliate, and it is unlikely other affected countries such as Germany, Japan, and South Korea will shrink from their responsibilities to protect their domestic industries. However, not all countries negatively affected by increased U.S. tariffs on steel and aluminum will be able to take effective counter-measures.
The impact on the aluminum market will have significant effect on Caribbean countries – Jamaica, Guyana, and Suriname as exporters of bauxite ore from which aluminum is made; and Jamaica, in particular, as a major exporter of alumina. The tariffs on China could change the dynamics for China’s investment in Jamaica’s alumina production and plans for future investment of as much as US $1 billion in aluminum production in Jamaica. Guyana is on record as seeking to revive its dormant alumina production and looking to Chinese investors to move this forward. Similarly, Suriname is looking for future increase in Chinese investment in its bauxite industry. Thanks to Donald Trump, the future outlook for bauxite and alumina production in the region may no longer be as optimistic.
To cite an old African proverb – “When elephants fight, it is the grass that suffers.” This means the weak get hurt in conflicts between the powerful. The Caribbean is now grass!