According to Moody's Costa Rica is one of the economies that could be affected significantly if after the presidential elections the U.S. decides to restrict its international trade policy.
Friday, September 23, 2016
From a press release by Moody´s:
New York, September 22, 2016 -- Mexico (A3 negative) and Costa Rica (Ba1 negative) are among the most exposed economies in the Americas, if the US (Aaa stable) were to shift toward a retrenchment from trade and investment ties after the November presidential elections, according to a report by Moody's Investors Service. Canada is less exposed since it does not benefit from the low labor costs that incentivized the offshoring of manufacturing operations.
This report focuses on the likely credit impact for the Americas if the US were to shift away from free trade. It is part of a series examining the impact of possible post-election shifts in US policies on different regions. As well as looking at trade, the report also examines the potential effect that the election outcome could have on foreign direct investment (FDI) from the US into Latin America and Canada, and how possible changes in US immigration policy could affect remittances to these economies.
Economic integration between the US and Latin America has increased since the North American Free Trade Agreement (NAFTA) and the Central America-Dominican Republic Free Trade Agreement (CAFTA-DR) were signed. However, trade retrenchment has become a recurrent theme of this year's election campaign, and a shift by the US toward a less open economy could pose significant risks to some Latin American economies.
The most reliant on exports to the US for growth, when measured as a share of GDP, are Nicaragua and Honduras. However these countries typically export low value manufactured goods. Mexico and Costa Rica are more exposed because high-value exports, such as cars and machinery, account for a large share of the goods that they sell to the US.
"These are the sort of industries and jobs that advocates of retrenchment want to bring back to the US," said Renzo Merino, an Analyst at Moody's.
FDI flows, which are a stable source of capital that finances a large portion of Latin American countries' current account deficits, could also be curbed in an attempt to prevent exporting of jobs abroad. Mexico is the country most exposed in terms of FDI, in particular should NAFTA be revisited.
While exports to the US make up 20% of Canada's GDP and it is a major recipient of FDI from the US, the probability of disruptive changes to bilateral trade between the US and Canada is lower than for Mexico.
Changes in the US government's immigration policies could also negatively impact worker remittances, which are particularly important for Central American countries. El Salvador, Guatemala and Honduras in particular, are highly exposed to worker remittance disruptions.
The report "Sovereigns —Americas; US Post-Election Shift in Trade Policy Would Affect Mexico and Central America Most," can accessed by subscribers on Moody's.com at
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The US president is already putting into practice his premise "America First", which leads Central America to anticipate negative changes in the flow of remittances from that country.
From a statement issued by the Central Institute for Fiscal Studies (Icefi):
This is good news for Central American textile manufacturers. We will have to wait and see what other protectionist measures will be implemented by President Trump.
The possibility that the United States buys textiles from Vietnam at lower prices than those paid by textile manufacturers in Central America seems to have now disappeared, however, in order to measure the true impact of the Trump protectionist policy on trade between US business and the region we will have to wait to see what other decisions on international trade deals are take by the new administration.
The strong dynamic of the global trade agenda forces Central America to consolidate its integration in order to participate in the changes that are shaping the global commercial order.
Editorial
The relaunching of the global trade agenda that the President of the United States is promoting in his second term, should be a warning for Central American countries, which despite reaching trade agreements with both the U.S. with the European Union, have sat on their laurels and have failed to complete the tasks needed to make the best use of these agreements, especially with regard to common customs and tariff policies.
Commerce between Panama and China summed $11,9 billion in 2010.
In a recent study, PriceWaterhouseCoopers (PWC) affirmed that China's ascendance in global trade is making it approach Latin American economies, which suffered relatively minor damage from the international crisis.
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