Trade & Investment: Us and Them

It’s difficult to write a blog about trade and investment at the moment without inevitably turning to the same two subjects: Brexit and Trump. Having already written about both of these twice since June, it seems right that we try to adjust the focus this month. To that end, it’s worthwhile to discuss two exemplar countries which have had seen little discussion in the context of these topics, but have a great deal at stake themselves.

Costa Rica

Trade and Investment

Within Latin America, Mexico has been the main target of the new US administration, in the context of NAFTA and the America First policy. The consequences of the policy on a country of 120 million people may be profound, but a general US inward looking policy may have even greater effects on smaller countries in the region. Costa Rica gives an example of a successful, strategic Investment Promotion Agency, where foreign direct investment (FDI) has helped to change the economy for the better, going back as far as Intel’s entry into the market in 1997. The challenge is that US firms represent around 50% of all the country’s FDI, supported by the US - Central American Free Trade Agreement. Will this agreement also be up for renegotiation in the next four years? Moreover, from where are the other key investors in Costa Rica? Canada and a soon-to-be weakened Mexico.

Solutions?

We can replace Costa Rica for any other country in Central America and the Caribbean, and the same will largely apply. So what can these countries do? The obvious is to pivot away from the US, possibly looking more to Asia, and despite its own problems, Europe. But at the same time, do they place a bet on US policy reverting back in another four years’ time? Perhaps the answer is to hedge, which may not be ideal, but maintains options in this era of unpredictability. The other focus must be on regional cooperation, both in terms of coordinated investment promotion efforts from bodies such as CAIPA and Connect Americas, but also on intra-regional trade and investment – something that the Asia Pacific region has been increasingly successful in.

Malta

At less than half a million, Malta is the smallest country in the European Union by population. While the UK is by no means its largest trading partner (it actually exports more to both Germany and France), nevertheless the loss of the UK from the EU, and it seems from the single market, will still be substantial. While the UK seeks to reinforce its Commonwealth links, including talk of new trade agreements, the reality is that cannot happen for Malta while inside the EU bloc.

An opportunity?

So, the country is placed in a difficult position where the EU is of vital importance, but links to the UK will weaken, while every other Commonwealth country may expect theirs to strengthen. At the same time, you could argue that Malta gains the same advantage as Ireland from Brexit, in that with English being an official language, interest from investors in the US and Asia will increase. The fast track to citizenship policy also adds to that. So like Costa Rica, Malta will have to place a bet on its future trade relationships. For now, that means a continued strong commitment to the EU, but in 12 months’ time, it’s anyone’s guess what the shape of the EU will look like.

What about us?

After the events of 2016, few can have confidence in predicting the future of global trade and investment. In general though, it’s unfortunate that commentary on the two major political events of today narrowly considers the US and UK, and then after that, other highly populated countries. But the consequences for small economies could be greater, yet gain far less attention.

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