Trinidad & Tobago and the United States of America (USA): The Economic Nexus, with some reference to the Post September 11th 2001 Events

• Author: Bhoendradatt Tewari/Roger Hosein
• Pages: 181-216

Chapter 7

Trinidad & Tobago and the United States

of America (USA): The Economic Nexus,

with some reference to the Post

September 11th 2001 Events1

This chapter examines the question of what might change, following the

September 11, 2001 attack of the World Trade Centre, in terms of the

relationship between Trinidad and Tobago and the United States of

America, given the fact that the USA is the main trading partner of

Trinidad and Tobago. The article anticipates continuing positive relations

between the two countries for a number of reasons which are identified

and outlined and suggests ways and means in which Trinidad and

Tobago might optimise the favourable prospects for trade and

investment.

This chapter was first published in R. Ramsaran, The Caribbean in the

International Arena: The Implications of Global Instability and Conflict,

Lexicon Trinidad Limited (2003), pp. 349–383.

1 The authors would like to acknowledge the research assistance of Cheung-Yun Pu and

Mahindra Maharaj.

Trade, Investment & Development

182

7.1 INTRODUCTION

Even before the tragic events of September 11th 2001, the USA was

already in a state of economic decline. In many of the other industrial

nations, the process of economic growth had also slowed given their

linkages with the American economy and also because during the

previous eight years the US economy was the primary source of growth

in the global economy. Developing countries were also inevitably drawn

into the turmoil as their export revenues began to fall and foreign

investors assumed a more cautious role.

Prior to September 11th, the World Bank (WB) had forecasted that

growth in the developing world would fall from 5.5% in 2000 to 2.9% in

2001. This decline, however, was widely conceived as being temporary

since by 2002 growth in the developing world was expected to recover to

4.3%. As a result of the events of September 11th, however, the recovery

of developed countries would be delayed. In particular, before September

11th the WB had estimated that the US and other OECD countries would

grow by 1.1% in 2001 and recover to 2.2% in 2002. With the events of

September 11th, however, it was estimated that the growth rate of

countries in the OECD block would be as much as 0.75 to 1.25

percentage points lower in 2002 (WB 2001). It is important to note,

though, that the WB made this forecast on the presumption that the

events of September 11th were Schumpeterian (one-off discontinuous

shock) and on the expectation that by the middle of 2002 business in the

developed world would return to normal. It also assumed that monetary

policy in the form of lower interest rates would stimulate higher

consumption expenditures as the opportunity cost of consumption fell.

These assumptions will be strongly tested in the coming years.

In the aftermath of the events of September 11th, the negative impact on

the global economy has become even clearer. The quick response of

industrialized nations via their monetary authorities created only

minimum level assurances for international financial markets to

recommence their day-to-day business. As investors seek to put their

money in safer havens, the already weak flow of capital to developing

countries will dry up even further as flows concentrate in those countries,

which are thought to be relatively immune to the crisis. The trend toward

increased private capital flows to developing countries established in the

1990s is expected to be reversed in the short run. In this regard, greater

multilateral lending may become necessary (WB 2001).

The events of September 11th have also dealt a serious blow to the

process of globalization. The process of globalization itself is founded

T&T and the USA 183

upon the basic idea that the world economy is safe. By extension, Joseph

Stiglitz, a distinguished economist noted:

“The borderless world through which goods and services flow is also a

borderless world through which other things can flow that are less

positive” (Business Week, September 24th 2001).2

The fact that globalization has a darker side (drugs, organized crime etc.)

has consistently been acknowledged but there has always been an

assumption that not-with-standing the costs, this darker side of

globalization could be managed. However, September 11th has forced a

reassessment of these assumptions. The war on terrorism being pursued

by the USA can restrict the main supply lines of the global economy

working through higher insurance premiums, greater delays at borders

and higher transport costs. These form the elements of a ‘security tax’,

which in turn would inflate the cost of doing global business, and slow

the integration of the world economy.

In the context of the forecasted decline in the real GDP of the OECD

economies, developing countries’ export revenues are expected to

decline as international demand falls.3 World trade is expected to have

increased only 1.7% in 2001 as compared to 13.3% in 2000, with export

growth in particular expected to fall from 19% in 2000 to 3% in 2001. As

a consequence, the growth of developing countries may be lowered to

between 0.5–0.75 percentage points in 2002. The events of September

11th have also triggered a tighter international liquidity position along

with an overall increase in risk aversion (WB 2001). Foreign direct

investment flows have also fallen from more than US$1.3 trillion in 2000

to less than half that amount in 2001. It may be argued that the collapse

in the flows of FDI in 2001 was mainly because of a fall-off in the

amount of mergers and acquisitions that took place in rich countries

(Economist, 2002),4 but it is difficult to deny the impact of the attack on

the World Trade Centre in New York.

The events of September 11th 2001 have underscored the need for more

equitable global growth. As noted by Porter (2002), failed states and

2 The stark horror of September 11th 2001 as reflected in the destruction of the World

Trade Center exposed in no uncertain way the ease with which enemies of the USA (and

by extension the capitalist world) could move around the world (Economist, February 2nd,

2002).

3 Lewis (1980) noted “for the past 100 years the rate of growth of output in the

developing world has depended on the rate of growth of output in the developed world.

When the developed grow fast, the developing grow fast, and when the developed slow

down, the developing slow down” (p. 555).

4 February 2nd edition, 2001.