The economic policies of the United States may be a major aid or a major obstacle to trade in Latin America and the Caribbean, according to the Mastercard Economics Institute (MEI).
But it could be a boost to trade with China.
In the MEI’s Economic Outlook 2025 entitled ‘Steering through change,’ the institute’s analysts opined, “Countries in the region are expected to experience growth divergence in 2025 due to varying monetary and fiscal policy stances.”
The Mastercard team pointed out that Mexico and Central America, in particular, will face potential impacts from changes in US trade and migration policies.
The report said, “Fiscal policy will remain a key focus, with inflation serving as the primary thermometer of policy success.”
It continued, “Latin America and the Caribbean is a truly diverse region, with countries at various stages of development and different global connections. Despite these differences, all countries in the region will face the consequences of local and global policies in 2025.”
Interesting for Trinidad and Tobago, the report said that the potential shift in focus by the US to China could largely benefit the region.
“The region could benefit from the US shift in focus towards the Chinese mainland. While Mexico will likely be part of ongoing discussions about US trade policy, the emphasis on reducing the Chinese mainland’s importance could, after some negotiations, be beneficial to Mexico and other countries in the region. However, global exposure of the region and social pressure against fiscal adjustments could hurt growth prospects,” according to the MEI analysts.
The assessment continued, “The Chinese mainland’s economic deceleration, coupled with US policy discussions on trade and migration, could impact different countries in the region differently. Chile and Peru are more closely connected to the Chinese mainland, while Central America and Mexico are more tied to the US (see trade chart below). Policy changes in the US could affect Mexico and Central American countries through trade and remittances. In Mexico, changes to the judicial system may also negatively impact business confidence.”
T&T was the first English-speaking Caribbean country to join China’s Belt and Road Initiative, which led to an increase in exports to China, and currently stands as China’s largest trade partner in the English-speaking Caribbean. T&T has consistently been hailed for its position to provide a platform for Chinese firms to access the wider North and Latin American markets.
The relationship has benefitted in rough periods before, as Chinese Ambassador to Trinidad and Tobago Fang Qiu noted that trade between China and T&T exceeded US$1 billion in both 2021 and 2022 despite adverse conditions as a result of the COVID-19 pandemic.
While energy products have typically been the main exchange between the countries, there has been growth in supply of non-energy products and services to the Chinese market, including cocoa, sauces (including pepper sauce), chocolates, rums, bitters, teas and other products.
Two weeks ago approximately TT$1M worth of Angostura Orange Bitters, Aromatic Bitters and various Angostura premium rums was shipped from this country to China.
It was the second shipment of goods sent by Angostura after it signed a distribution agreement in July 2024 with Caribbean Commercial Management (Hangzhou) Company Ltd., a subsidiary of First Caribbean Marketing Company Ltd. (FCMC).
Angostura said over $3 million in products had been shipped to China since that deal was made.
The Mastercard report forecast further growth in that trade route, particularly as it anticipated major changes in economic policies when Donald Trump is reinstalled as US president.
The report said. “MEI expects developments on US trade policy to impact the economic outlook of most countries around the world. There has been discussion amongst the new US administration to propose increasing tariffs on imports from the Chinese mainland by 60 per cent and tariffs on the rest of the world by 10 per cent to 20 per cent. In addition to the Chinese mainland, countries most at risk are those with the largest share of goods exports heading to the US relative to their total exports. Mexico and Canada are highly dependent on the United States, but as the revision of the USMCA approaches (“new NAFTA” trade agreement), their negotiation positions differ.”
It continued, “These fresh trade risks emerge as global trade in goods is already facing headwinds from economic nationalism, supply chain reconfigurations and military conflicts. However, it is often overlooked that trade in services, where traditional tariffs do not apply, has continued to grow. This growth is driven by the rise of the digital economy and a shift in consumer preferences from goods to services, a trend that has been further reinforced by the pandemic.”
The MEI did note that there were many variables with regard to trade which could come into play.
“MEI expects that imposition of tariffs - and likely counter-tariffs - would serve as a downside to real global growth and an upside to inflation. Growth is likely to be further impacted by uncertainty that will weigh on investment until these policies become clearer. However, some impacts can be offset by greater intra-regional trade, a trend already underway, as well as by growing trade in data and in services, which can increase productivity and be deflationary. These potential benefits, however, will play out over a more extended period.”
The report also assessed the potential impact of the US’s migration policies on trade, noting that that too could shape trade relations in the region.
“While migration results in a loss of human capital, it also generates substantial remittances, which serve as a lifeline for low-and middle-income communities in developing economies. According to the World Bank, remittances surged from US$128 billion in 2000 to US$857 billion in 2023, with an estimated growth of 3 per cent in 2024 and 2025,” said the report.
However, it noted that digitalisation could serve as a buffer for some of the challenges created by some of the policies that may be implemented.
“There are cross currents for 2025. On the one hand, migration is likely to slow, particularly given changes in immigration policy in the US and other developed economies. On the other hand, the continued digitalisation of the payments industry allows recipients to shift to digital and mobile channels, considerably reducing frictions and costs,” the report added.
The MEI also noted that Trinidad and Tobago should experience 2.1 per cent consumer price inflation, 2.5 per cent real consumer spending and real gross domestic product 2.7 per cent.
