Anti-Globalization Raises Concerns for Caribbean Region

Over the past few months, elections and political events have demonstrated a clear shift towards protectionism and anti-globalization in Europe and the Americas. In particular, the United Kingdom’s departure from the European Union, or Brexit, and real estate mogul Donald Trump’s election as United States president illustrate this movement.
 
In a hotly contested referendum, the United Kingdom voted for “leave” on a 52% to 48% majority in a move “leave” advocates have characterized as a reclamation of national sovereignty. In a similar tone that prioritized domestic development, President-elect Donald Trump’s campaign promises included building a wall on the United States-Mexican border, mass deportation of illegal immigrants, tax reduction, and expansion of U.S. infrastructure. For the small nation-states of the Caribbean, these two events only serve to increase economic uncertainty regarding their two largest trade partners, the United States and the European Union.
    
In post-Brexit months, the pound sterling has fallen to its lowest valuation against the dollar since 1985, while the dollar has soared following Mr. Trump’s election, with current analysts expecting higher inflation due to increased spending funded by debt (1). For Caribbean countries heavily dependent on tourism, the weaker pound will decrease the number of British tourists, while the stronger dollar may increase the number of Americans. On the other hand, the stronger dollar increases the debt owed in U.S. currency by Caribbean countries, making it costlier for them to repay. Regardless of the fluctuations in currency, it is still unclear how far Mr. Trump’s protectionist policies in trade will negatively affect the Caribbean. This issue, however, is further complicated by a global trend among banks known as de-risking. 
    
De-risking is a trend driven by international banks’ desire to cut potential liabilities with high-risk clients or institutions, resulting in the termination or limitation of corresponding banking relationships (CBRs) with local banks from developing areas of the world (2). The Caribbean by far is the region that has been the most severely affected. In fact, data from the World Bank estimates that 89% of jurisdictions in the Caribbean have reported significant to moderate declines in foreign CBRs, with small jurisdictions with large offshore banking activities seeing the highest decrease (3).
    
While the global financial industry has various reasons for de-risking, its primary motivation is to reduce liabilities from money laundering, offshore banking, and financing of drug-trafficking or criminal organizations (4). With high risk and low revenues, Caribbean banks were the first to suffer, a result that is negatively affecting other key economic drivers. The tourism industry, for instance, plays a major role in regional economies of the Caribbean, generating 15.9 billion USD in the Caribbean in 2014 (5). It is common practice for tourists to pay in foreign currency or by credit card, but it is becoming more difficult for local businesses to exchange currencies.
    
The decline of CBRs has also increased the difficulty of receiving remittances from family outside of the Caribbean. For countries in the Caribbean heavily dependent on these transfers, this CBR decline is troubling. For Jamaica, remittances composed 16% of total GDP in 2015 (6). It does not help that a majority of these remittances come from the United States and United Kingdom.
    
The political uncertainty that abounds to the Caribbean’s north is mirrored across the Atlantic. With the pending departure of the fifth largest economy in the world from the EU, trade agreements will have to be renegotiated and restructured. Currently, trade between the Caribbean and the European Union is governed by the CARIFORUM-EU Economic Partnership Agreement (EPA), with CARIFORUM serving as the base institution through which Caribbean countries manage trade with the EU. 
 
As CARIFORUM’s second largest trade partner, the EU has opened up trade with a value of over 8 billion euros in 2011 (7). CARIFORUM’s main exports comprise minerals, including gold; bananas, sugar, and rum; fertilizers; and petroleum gas, oils, and mining products, exports that have suffered with recent declines in oil prices and aggregate demand (8). 
 
The CARIFORUM-EU EPA was designed to grow CARIFORUM countries’ economies, functioning almost as a free-trade agreement to ensure fair competition and open up service sectors in industries such as entertainment (9). The EPA also includes financial support from the EU geared towards development, but with the impending Brexit, this support may decrease.
 
For the first time in a decade, Caribbean and Latin American economies are growing at a lower rate than those of European nation-states. In fact, 2016 will see Caribbean and Latin American economies’ GDP shrink by 0.9%, while the EU’s GDP will grow by 1.8% (10).
 
    
In the past, CARIFORUM would look to the United Kingdom to advocate on their behalf in Brussels. With the UK now facing negotiations that will govern its own trade policy for years to come, CARIFORUM now finds itself more exposed than ever to global financial crises with its dependence on foreign savings and increasingly uncertain relations with foreign banks.
    
Presently, the Caribbean Community, or CARICOM, upholds the tenets of economic integration and joint development for Caribbean and certain Latin American countries. Further economic integration and the creation of a common currency may be answers to achieving economies of scale and more bargaining power on the international playing field. It will not be easy. In a time where EU advocates fear contagion from Brexit may spread to continental Europe, Jamaica has established a commission to rethink its involvement in CARICOM (11). For its neighboring nation-states dependent on trade, this move is extremely worrying.
(1) Ryan, Charlotte. "Pound Drops to Lowest Since 1985 as Angst Builds Over Brexit." Bloomberg.com. Bloomberg, 4 Oct. 2016. Web. 
 
(2) "Withdrawal from Corresponding Banking: Where, Why, and What to Do About It." The World Bank Group, Nov. 2015. Web. 
 
(3) Ibid.
 
(4) liams, Arthur. "Why Caribbean Banks Are Bracing for Problems." Americas Quarterly. N.p., 2 Nov. 2016. Web. 
 
(5) "Travel and Tourism : Economic Impact 2014." The Caribbean Development Portal. The World Travel and Tourism Council, 2014. Web. 
 
(6) "Countries and Regions: Caribbean." European Commission Directorate-General for Trade. European Commission, n.d. Web.
 
(7) Ibid.
 
(8) Ibid.
 
(9) Ibid.
 
(10) Cumberbatch, Shawn. "Still Trade Hope with European Union." Www.nationnews.com. Nation News, 6 Nov. 2016. Web. 
 
(11) Charles, Jacqueline. "Brexit: Caribbean Worries about Ripple Effects." Miami Herald, 11 July 2016. Web. 

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