In an election victory likened in its unforeseeability to the United Kingdom’s (UK) Brexit vote five months prior, billionaire businessman, Donald J. Trump, will become the United States’ (US) 45th president. His party has also retained its majority in both houses of Congress.
In contrast to the jubilation attending then Senator Barack Obama’s “Yes we can” message eight years ago, Mr. Trump’s impending ascendancy to the White House has been enveloped by profound uncertainty over the future orientation of US foreign and economic policy. Nonetheless, the US’ position as Barbados’ largest trading partner, second largest source market for tourist arrivals and an important foreign policy ally means that constructive engagement with the Trump administration is not a choice but an imperative.
In this article, I will outline what I believe are four key trade and investment priorities which will likely frame US-Barbados economic engagement for the foreseeable future.
A first order of business will be continuing the conversation that CARICOM governments and stakeholders have started with US officials and regulators on the de-risking activities of US-based international banks, including the withdrawal and restriction of correspondent banking relationships. These relationships are Barbados’ lifeline to the global financial and trading system, critical for the trade, investment and remittance flows which buoy our small open economy and sustain households. US foreign policy orientation towards the Caribbean has constantly recognized that an economically secure “third border” complements US’ strategic security interests. Any threat to the region’s economic and financial inclusion is something which should be of mutual concern.
While de-risking is a cost-benefit decision for banks, it is also partly fuelled no doubt by ambiguous regulations and the Caribbean’s undeserved reputation in some quarters as a high risk place for doing business. Therefore, actions by US authorities which unfairly label Barbados as a “tax haven” contribute to the problem. In 2015 the state legislature of Montana, and the District of Columbia, had included the island among their proposed lists of tax havens. This is despite Barbados’ having taken steps to ensure its compliance with the Foreign Account Tax Compliance Act (FATCA) and our clean bill of health by the Organisation for Economic Cooperation and Development (OECD).
International Financial Services & FATCA
Although President-elect Trump has promised to lower the US federal corporation tax rate from 35% to 15% and provide a deemed repatriation of corporate profits held offshore at a one-time tax rate of 10%, his orientation towards international financial centres (IFCs) in general is not well-known.
While the current US administration has not been terribly supportive of IFCs, Mr. Trump’s background as a business person may make him more appreciative of the role IFCs play in making US businesses more efficient and profitable, which in turn facilitates their contribution to US economic and job growth.
Barbados receives only a small part of its international business from the US but there are opportunities for continued promotion of our international business vehicles like captive insurance and segregated cell companies. Additionally, continued engagement with US authorities will be necessary to iron out any implementation and reporting issues under FATCA.
Market Access for Barbadian Goods and Services
Barbadian manufacturers enjoy non-reciprocal duty-free access to the US market for most goods under the Caribbean Basin Initiative (CBI). According to US Census Bureau data, Barbados exported US$68.2 million dollars’ worth of goods to the US in 2015, but imported US$596 million in the same period. The CBI is unilateral which means that the benefits can be unilaterally revoked and the criteria for eligibility changed at any time. However, CBI is generally believed to be beneficial to US manufacturing and jobs and Barbados has a large trade deficit with the US, which should keep CBI off the President-elect’s immediate radar.
One sticking point in US-Barbados trade relations is the cover over subsidies which the US Federal government pays to the US territories of Puerto Rico and the US Virgin Islands out of excise taxes it collects from imported rums, which has made Barbadian rums less competitive in the US market. Turning to merchandise trade in general, non-tariff barriers such as sanitary and phyto-sanitary and labelling requirements have also been a constraint on market access.
In regards to services exports, Barbadian service providers have no preferential access to the US market. The CBI does not cover services trade. Barbadian business persons seeking to supply a service in the US instead rely on non-immigrant visas. Mr. Trump has promised to tighten the US’ border and control policy. It is not certain whether this will be extended to non-immigrant visas as well.
President-elect Trump has promised to impose tariffs on imported goods manufactured abroad by American companies which had relocated but has said nothing about US outbound investment in services, an area which more plays to Barbados’ strengths as an investment jurisdiction; a well-regulated treaty-based jurisdiction of substance, with a strong democratic tradition, rule of law, good ICT infrastructure, and a well-educated human resource base. It is not known the volume of US foreign direct investment (FDI) into Barbados, but the US and Barbados do have a double taxation agreement. A stronger strategy for promoting US FDI could include the negotiation of a bilateral investment treaty (BIT) which serves as a clear signal to investors of the host state’s commitment to investor protections.
Mr. Trump’s election has evoked an aura of uncertainty over what will be the future paradigm of US-Barbados relations. Although the Caribbean had not featured in the policy discussions during the campaign, Mr. Trump’s populist rhetoric illustrated a marked departure from the tenets of current US economic and foreign policy. He has, however, been light on specifics.
Nonetheless there are two sparks of hope. Firstly, President-elect Trump is a business person at heart and more attuned to a ‘dollars and cents’ argument. Secondly, Mr. Trump’s malleability in regards to his positions evinces some pragmatism on his part. These two factors suggest that there may be more scope for discussion with a Trump administration than may initially be perceived. A clearer sense of his true policy orientation will be more discernible when more of his Cabinet picks are revealed and his proposals are elaborated upon.
While these issues I have highlighted will not be policy priorities for the Trump Administration, they are issues of importance to Barbados. As such, Barbados must be pro-active in its engagement with the Trump administration from day-one.