At a time of galloping worries about the possibly economic fallout from Donald Trump’s ascendancy to the United States presidency, it’s inevitable that people in Barbados and the rest of the Caribbean would ask key questions:
What about us? Would Trump’s policies help or hurt the island-nations which rely on tourism or financial services, or both, to generate jobs and boost public revenues?
Much will depend on the expertise and the political and other interests of those providing answers to the questions about the future of the financial market in the world’s largest economy.
If the responses are coming from a conservative economist with a deep interest in low taxes or a progressive expert in tax law in Washington, you are likely to hear different assessments.
That’s what happened when BARBADOS BUSINESS AUTHORITY put the questions to Dr Dan Mitchell, a conservative economist and senior fellow of the Cato Institute, a prominent think tank, and to Bruce Zagaris, a partner in a Washington law firm, who have been paying close attention to what Barbados, The Bahamas, Puerto Rico, the British Virgin Islands, Bermuda, the Cayman Islands and their neighbours have been doing to manage or mismanage their economies for the past ten to 15 years.
“The election results, especially Trump’s victory in the presidential race, not only caught me by surprise but may turn out to be very good for Barbados and those Caribbean countries which have strong financial services sectors,” said Mitchell, whose op-ed commentaries have appeared in the Wall Street Journal, the Washington Post, the New York Times and other major publications in recent years.
“President Trump wouldn’t bring the ideological imperative that there was with the Barack White House,” he said.
“Trump is a businessman who thinks it is good when governments have to compete,” argued Mitchell, a founder of the Centre for Freedom and Prosperity.
“I think he will be more sensitive to the question: why are we trying to impoverish the Caribbean when we should be pressing for them to grow? The Obama administration put ideology above everything. It was a strong left wing ideology that wanted tax harmonisation.”
Although Mitchell was quick to admit that Trump’s supporters didn’t spend “a lot of time thinking about this issue” in the Caribbean, Mitchell believes “they would be open to it”.
He expects Trump to walk in the footsteps of a former president at the turn of the 21st century when there wasn’t a heavy-handed approach to tax competition.
A close eye must be kept on Trump’s appointments to the Treasury Department. They would be important indicators of things to come on such issues as cutting taxes on the wealthy, spending more on infrastructure, and undertaking significant tax reform.
Just as important, Trump wants to renegotiate the North American Free Trade Agreement with Mexico and Canada. He has threatened to pull out if America’s partners baulk.
There’s more.
He has threatened to alter the US tax code, impose tariffs on exports from some trading partners, Mexico, for instance, if they don’t play ball with Washington. He has also put major US major manufacturers including Ford, Apple and Boeing on notice that they must bring back production plants and give jobs to Americans.
Mitchell believes he may meet some key senior officials in the new administration to discuss important issues affecting the Caribbean.
That’s particularly true when it comes to the Organisation for Economic Cooperation and Development (OECD) in Paris, which has turned into a thorn in the sides of Barbados, The Bahamas and other countries with offshore financial services sectors.
“Hopefully, I will have a good opportunity to talk to a lot of people in the [Trump] administration and get them to back off from the OECD, to back off from things like [the Foreign Account Tax Compliance Act] and to have a much more reasonable approach to the Caribbean,” said Mitchell.
“Things would be much better for the Caribbean if the US reforms its tax system and have a more reasonable approach. There wouldn’t be an incentive to bully the Caribbean and mistreat the island-nations and coastal states.”
But there is another side to Mitchell’s equation and it was sketched by Zagaris, who has advised successive Barbados Governments on US tax matters.
Indeed, he takes a cautious approach to what Barbados and others can expect from Trump.
“I don’t see the Trump administration as being so good for the Caribbean,” said Zagaris, a partner in a prominent Washington law firm.
“Actually, it’s very early in the process to see gains for Barbados, The Bahamas and others in the region. We must wait and see who are the senior officials Trump appoints to the Treasury Department before we can speculate on the impact of the new White House policies.
“We will not know about that until we see who the Secretary of the Treasury is; who the international tax counsel is; and who is the assistant secretary for tax policy in the Treasury.”
In any case, the pace and effectiveness of tax reforms would take time to hit home, should the Trump team decide to move in that direction.
“FATCA is already a fact of life and that’s unlikely to change under Trump. De-risking by banks is in force,” said Zagaris. “The banks which are moving ahead on de-risking are unlikely to change their stance, given the penalties with which they can be slapped on them if they did something wrong.”
In short, the toothpaste is already out of the tube and can’t be forced back in.
Still, something can be said for Mitchell’s assessment. First is the mood the White House sets with its policies and next is the Republican control of the Congress.
When combined, they can hurt or help the Caribbean.
