The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas' tax structure threatens to exacerbate any "cost of living increase" from a global trade war, the Chamber of Commerce's chairman yesterday branding it "a serious concern".

Michael Maura told Tribune Business that The Bahamas' regressive, consumption-based tax structure through VAT and customs duties means that Bahamians will be among those hit hardest by tariff-induced price rises in the US and other developed economies.

As tensions and threats between the US and its major trading partners continue to escalate, and the tit-for-tat imposition of retaliatory tariffs shows no sign of abating, Mr Maura said the Bahamas' reliance on imports for virtually everything it consumes could cause a local impact that is "that much greater" than in other nations.

Perfectly positioned to observe the impact as chief executive of Arawak Port Development Company (APD), the operator of New Providence's sole commercial shipping port, he added that the Bahamas was particularly exposed due to its dependence on major economies at the heart of the growing dispute.

And Mr Maura's warning was echoed by the Central Bank in its May economic report, with the monetary policy regulator warning that the rise in global protectionism was among the biggest short-term risks to the Bahamian economy.

"The risks to the economy remain tilted to the downside, as the unfolding international trade disputes could negatively impact global growth, with spillover effects to the local market," the Central Bank warned.

Mr Maura, for his part, said: "I'm very concerned about it because our reality is that if I look at the share that the US and Canada have of our imports coming across the bulkhead, it's about 75 per cent.

"Of the other 25 per cent, a large portion is coming out of China. Conservatively, 80 per cent of what we're buying is coming out of the US market, the Canadian market and the Chinese market."

He added: "If there is a trade war going on among those economies, and they're beginning to see prices on products increase, those increases are going to be passed on to us. The degree of the increase is going to be that much greater as a result of our own tariffs and duties.

"It is a major concern, a serious concern I have, and all of us in the private sector and the Government need to sit and watch this carefully. If we don't see a return to free trade among these significant economies, the Bahamas and Caribbean countries are going to find their cost of living increasing."

The Donald Trump-inspired 'trade wars' are especially ill-timed for Bahamians, who are already facing 'cost of living' increases due to the VAT rate increasing to 12 per cent and the $25 per barrel rise in global oil prices to $73. That represents a 52 per cent year-over-year increase.

The Central Bank confirmed that both developments will increase Bahamian inflation, saying: "Given the context of elevated energy prices, along with potential price gains following the increase in the VAT rate in July, domestic inflation should accelerate over the near-term, albeit from a low base."

The US president initiated what many fear will become a full-blown 'trade war' via the imposition of 25 per cent and 10 per cent tariffs on imported steel and aluminium, respectively, from major trading partners such as China, Mexico and the European Union (EU).

Mr Trump argues that past trade deals have been "unfair" to the US, and says he wants to slash the multi-billion dollar trade deficits that have resulted with major trading partners. His actions are also seen as an attempt to shore up an uncompetitive US manufacturing base and play to voters in states that were key in swinging the 2016 US presidential election his way.

The flamboyant businessman is also targeting what the US perceives as China's theft of US 'intellectual property' and technology, and its denial of market access to American companies by mandating that they joint venture with Chinese companies.

The EU, Canada and China have all imposed billions of dollars in tariffs on US imports, targeting products such as motorbikes, agricultural products, Levi's jeans and bourbon whiskey. Neither of the sides show any sign of backing down, with all issuing threats of further tariffs and retaliatory measures.