The economic policies that the coming administration will apply in the US are not clear, but it is a great chance to ask what are their probable effects in Costa Rica and to propose some actions that should be carried out.
Effects on Foreign Direct Investment (FDI)
The direct and personal action of the President-Elect to prevent Carrier from removing 1000 jobs from Indiana was made with incentives from the State of which Vice-President Elect Pence is governor. However, the President-Elect has once again talked about taxes for those companies that move their operations abroad.
The uncertainty about the situation of imports to the US reduces the advantage for companies to invest abroad. This would affect Foreign Direct Investment (FDI) from that country.
This would not necessarily affect the production of American companies already located in Costa Rica, but it could reduce future investments.
In addition, if American FDI is affected by regional, natural markets like those of Central America, Costa Rican exports could be weakened.
For years, the SDI has allowed Costa Rica to keep the necessary volume of imports for consumption and production.
In addition, an eventual significant decline in FDI would lead to an increase in the exchange rate, an increase in prices, an increase in the fiscal deficit due to the cost of serving the external debt, and thus the interest rate.
On the other hand, as all Costa Ricans know, in both manufacturing and service production, wages in free zones are higher. It is also known that in this sector, productivity increases with a greater speed. A decline in FDI would mean that the future growth of domestic production would take place in a smaller proportion in the free zones, and consequently, it would result in lower wage averages.
Effects on Foreign Trade
It is unlikely that President Elect Trump’s direct measures will affect Costa Rica’s exports to his country. The US has a favorable trade balance with Central America.
During his campaign, Trump announced measures that, in this field, would directly affect Mexico and China. However, it is unknown how these measures could be implemented. Can the US put tariffs that affect its importation of intermediate goods and lower the price of final goods without affecting its exports, which, in many cases, uses cheaper imported supplies?
Nevertheless, the measures taken by Trump Administration regarding international trade can affect Costa Rica, even indirectly: the country is so small and therefore necessarily open and dependent on international trade flows, that if affected, its external opportunities for growth would decrease.
Effects of an expansive fiscal policy
On the other hand, the American, future ruling team has pointed out expansive measures of the economy such as an increase of the investment in infrastructure and in armament, and a decrease of taxes.
As consequence, the stock market has reacted with a significant increase in the price of financial assets, whereas in the exchange markets, the value of the dollar has strengthened.
This would mean a potential increase in the purchase of Costa Rican goods and services by the Americans, and it would benefit the national growth.
Eduardo Lizano has stated that the country must not only observe. It is essential to act proactively.
As a result, it is necessary, without a doubt, to reinforce our presence in Washington. This decision should be studied as soon as possible,
explained Lizano.