This week in Washington, D.C. the World Bank and the International Monetary Fund will accommodate Central bankers and finance Ministers from 189 countries as they grapple with the state of the World economy. The World economy crashed in 2008 when the housing bubble in the United States financial institutions was on the brink of insolvency and it had a domino effect on the worldwide financial system. The cascading impact produced what we now call The Great Recession.
The United States and the world ploughed it’s way back and in the case of the United States, the country has experienced uninterrupted economic growth for the last 10 years, the longest expansion in American history. Nonetheless, as the bankers gather, there are ominous signs that the world economy is slowing and there is the possibility of a recession in 2020.
The United States and China are the two economic giants and when both economies are experiencing healthy economic growth, it lifts the fortunes of the world economy. When they are embroiled in tariff wars, the economies of the developing world are profoundly affected. There is some ray of hope as Trump announced in the White House the latter part of last week that China and the U.S. had reached a preliminary agreement in de-escalating the senseless trade war. American tariffs that were to take effect on October 15, 2019, were not imposed.
Although nothing has been signed, it appears that China and the United States have agreed that China will open its financial services market, protect intellectual property and China will begin the purchase again of sizeable amounts of soybeans critical to the financial wellbeing of American farmers and indispensable to Trump’s chances of winning re-election in 2020. The rural vote was Trump’s base in part in the 2016 election but the rise in bankruptcies in the farm region exacerbated by the trade war has jeopardized Trump’s support in rural America.
CARICOM Ministers who attended the Commonwealth meeting last week alighted with a strong statement articulating the need for strengthening the World Trade Organization that was established for the purpose of settling trade disputes but have been bypassed in the fast-moving events taking place in the world economy. The CARICOM Ministers also addressed the importance of small countries like in the Eastern Caribbean and the need in these worldwide deliberations to be mindful of the specific needs of microstates.
For CARICOM to carry any weight in worldwide or regional deliberations, a unified voice is a prerequisite. CARICOM split when the Organization of American States opted to endorse and recognize Juan Guaido as the leader of the government in Venezuela rather than Nicolas Maduro who still has control of the military. It was not the wisest of decisions as Venezuela has become a festering sore in the region and the exodus from the country has triggered a humanitarian crisis in Venezuela and Colombia where millions of Venezuelans have taken up refugee status.
What has emerged before and after CARICOM is the emergence of larger regional blocs that certainly impact on the developmental process in the region. NAFTA came into existence in 1994 and created a free trade area linking the economies of the United States, Mexico, and Canada. Despite its prolonged existence, NAFTA has not been embraced by organized labor in the United States and there is a wide range of opinions with respect to economists regarding the impact of the free trade area.
There is no question that NAFTA has led to a tremendous upturn in trade among the three countries. In the case of the automobile sector, labor unions and some Democratic Party politicians blame NAFTA for the loss of good-paying jobs in the automobile industry. Mexico jumped from 120,000 workers employed in the auto industry to 550,000 in recent years. American consumers benefited presumably by purchasing cheaper cars and lower inflation.
In the UAW strike against General Motors which remains unresolved, one of the explosive issues is the closing of plants that “eat into” workers’ job security. NAFTA has been great for multi-national corporations but as is the case with globalization, it can have a devastating impact on communities when work disappears.
In the world economy, there is the free movement of capital but in a regional trading bloc like NAFTA, there is no free movement of labor. The northern part of Mexico has benefited from the transfer of technology and the geographical modernization that has taken place in the northern part of Mexico.
In the southern part where agriculture dominates, those rural economies have not been able to compete with the influx of American agricultural goods. In the early years of NAFTA, these displaced agrarian workers ended up trekking north and entering the U.S.A. as illegal immigrants. That flow has ceased as more Mexicans are returning to their home country. The paradox is that the Central American Free Trade Area has been a factor in displaced agricultural workers in the Northern Triangle – Honduras, El Salvador and Guatemala who end up seeking refuge in affluent America.
CAFTA came into existence in 2004 and includes seven countries – Costa Rica, Nicaragua, Honduras, El Salvador, Guatemala, the Dominican Republic, and the United States. Having access to the United States market has had a stimulating effect on CAFTA countries with respect to exports. Since CAFTA most of these countries have registered robust economic growth. Especially in the case of the Dominican Republic in 2015, their GDP growth was 7 percent and in 2016 and 2017, they were in the 6 percent range.
In the case of Costa Rica, their economy has been buoyed by foreign direct investment and the privatization of insurance companies and telecommunications. Costa Ricans voters were wary about joining CAFTA and in a referendum barely mustered a majority of the electorate.
El Salvador, Honduras, and Guatemala have experienced GDP increases but the problems of corruption, drug cartels and gang violence inhibit the full benefits of being in CAFTA. CARICOM has not had much of an economic impact as there is no access to a large consumer market like the United States.
Regional associations seem to be leaving the Caribbean region behind with the exception of the Dominican Republic. Other South American countries like Colombia and Chile have established special relationships with the United States of America. America paid attention to the English-speaking Caribbean when there was a groundation in left-wing policies but once that scare evaporated, the region was left to benign neglect.
Caribbean nations have got to begin articulating a place for themselves in this highly competitive world economy. Nations can no longer function in isolation and Caribbean economic development will hinge heavily on having access to larger markets whether it is the European Union, China or the United States. This is where the intellectual power of Caribbean leaders can make a difference in forging a brand new world for the CARICOM community.