After the victory of Donald Trump in the United States electionsbacked by a Republican majority in the House of Representatives, local economists assess the impact the Trump administration’s policies could have on the dominican economyhighlighting some potential risks and opportunities this change in leadership could bring to the local economy.
Experts point out the possibility of a trade war driven by protectionist policies, which would affect Dominican exports and increase import costs. At the same time, they mention the opportunity to attract new investments in strategic sectors, especially in free zones, if the United States decides to strengthen its industries.
For Miguel Collado Di Francoexecutive vice president of the Regional Center for Sustainable Economic Strategies (Crees), with this new Trump mandate it could be expected that the economy “in a general sense” will grow at a lower rate.
“This impulse would be given by tax cuts and deregulations. The idea is to make the United States economy more competitive. However, it remains to be seen whether these policies are implemented and whether higher tariffs are established. These measures should not affect our relations due to the free trade agreement,” said the economist.
Collado also observed that tariff measures should not affect the business relationships by the Free Trade Agreement between the United States, Central America and the Dominican Republic (DR-Cafta). “I must add that we must be attentive if the policies become so aggressive that attempt to alter, through negotiations, free trade agreements. We see it as something distant, but not improbable,” he added.
11%
It was the average annual growth of US remittances during the period 2016-2019, in the first Administration of Donald Trump.
Attentive to a possible trade war
Regarding tariff changes, Antonio Ciriacodean of the Faculty of Economic and Social Sciences of the Autonomous University of Santo Domingo (UASD), recalled that the Trump campaign promise It included a universal increase in tariffs by 10%, in addition to establishing specific tariffs for China and Mexico: 60% for some exports from China and 30% for those from Mexico.
“All this could unleash a trade warwhich would clearly affect Dominican exports to those markets, especially those from free zones,” he explained.
Another aspect that stood out is that the markets are already reacting to this policy, with higher tariff levels. In fact, he pointed out that there could be, as a consequence, an increase in domestic prices in the United States, since imports would become more expensive. “This is relevant in a country with a significant trade deficit,” he added.
Furthermore, he warned that this issue could trigger a increase in interest rates and reverse the reduction policy that the United States Federal Reserve (Fed) has been implementing, a policy also followed by the Central Bank of the Dominican Republic (BCRD).
Being in the dollar zone, the BCRD could be forced to reverse its monetary policy and increase interest rates, which would affect the dominican economy.
- Financial markets. The expectations generated by Trump’s economic proposals could also have repercussions on financial markets. Ciriaco cited as an example, 10-year U.S. Treasury bond yields are now at elevated levels (around 4.5%), reflecting the expectation that interest rates will continue to rise. This is indicative that, despite the Federal Reserve’s efforts to keep rates low, the market expects an increase in the cost of money in the near future.
A more positive vision
The economist Ellen Perez Ducy has a more positive view on the arrival of the 47th US president to power, highlighting some opportunities. “Trump’s economic vision focuses on attracting investments back to that country to generate local jobs and for geostrategic reasons. As long as this promotes its growth, the Dominican Republic would benefit from a spillover effect,” he indicated.
He considered that the sector free zones It would not necessarily be affected, as it could take advantage of the ‘nearsourcing’ strategy. “In terms of costs, it would be necessary to evaluate in each case whether the tax reduction or elimination of exemptions offsets the savings in labor costs in the Dominican Republic.”
He assured that the Dominican exports towards the North American country are not an important competition within its productive structure, which is why it is considered unlikely that there are reasons to impose tariff increases on products such as medical instruments from free zones, tobacco, textiles, plastics, paper, medicines, footwear, sugars. , sweets, or food.
“The other major objective is to relaunch the housing construction in the USA Many Dominicans work in this sector. In other years when construction has grown, it has favored the increase in remittances. Between 2016 and 2019, remittances from the US to the country grew from 3,703 million dollars to 5,430 million, with an average annual growth of 11%,” the economist explained.
In another order, he specified that the reduction in income taxes and the increase in subsidies for family care works in favor of increasing the income of Dominicans residing in the US, from which greater consumption in tourism, remittances and investment in the country could be expected. “This would be positive for the dominican economy“said the economist.
The dollar, cryptocurrencies, especially Bitcoin, and Wall Street futures rose sharply this Wednesday in the face of Donald Trump’s victory in the US presidential elections.
Since the early hours of Wednesday, November 6 -after the elections-, when the first results were known, the market reacted positively to Trump’s victory, and the futures on the main Wall Street indicators soared.
At 11:30 a.m., the Dow Jones advanced nearly 3%; the S&P 500, 2.27%; and the Nasdaq, 1.72%, boosted by Trump’s promises to cut corporate taxes.
