Wielding tariffs as his favourite weapon, US President Donald Trump has now initiated a trade war against several countries, both friend and foe. In a globalized world, there is scope for a principled discussion on tariffs. The President, however, is using America’s economic clout as leverage to achieve his foreign and domestic policy goals. When wielded indiscriminately, tariffs become disruptive to trade. And since they upend the theory of comparative advantage, they generally make everyone poorer.
Some of the countries against whom tariffs have been levied are important trading partners of Belize. The inevitable result, therefore, given the small, open, and import-dependent nature of Belize’s economy, will be incalculable.
While there is much that can be debated about tariffs, what is certain is that a tariff is a tax charged on goods imported from other countries, and it provides revenues to the government of the importing country. Typically, tariffs are a percentage of the product’s value. So then, if the USA imposes a 20% tariff on a product worth $10.00 being exported from Mexico, the tariff would be $2.00. That $2.00 tariff would be payable to the Government of the United States.
What is not as certain is who eventually pays the tariff and all its economic consequences thereafter. The tax is initially paid by the importer and may or may not be passed on to the final consumer. The tax can also be paid by the exporter, who may opt to absorb the added cost. Who ultimately pays depends on what microeconomists regard as the incidence of taxation and the elasticity of demand of the affected commodity. The broader economic consequences of the tariff depend on the willingness and ability of the affected country to counter the tariff initiated by the United States.
From the importing perspective, and using 2023 data, Belize’s largest trading partners were the United States (41.9%), China (17.2%), and Mexico (9.5%). From the exporting perspective, Belize’s exports went to the European Union (21.7%), United Kingdom (21.1%), CARICOM (20.0%), and the United States (19.1%). The United States has imposed tariffs on the European Union and Mexico and broadened existing tariffs on China. Additional tariffs have been threatened on other countries. Even if these threatened tariffs do not materialize, markets and companies hate uncertainties. Bear in mind that while it is countries that impose tariffs, it is business firms that engage in international trade. These are headed by managers and chief executive officers who must necessarily be futuristic in their planning and decision-making.
While it is uncertain when the effects of the tariffs will begin to impact Belize, perhaps the best indicator is the rate of inflation. Most recently at 1.9% for February 2025, inflation is the statistic Belize measures most often. Inflation is measured by a Consumer Price Index which tracks changes in the prices of a basket of goods and services typically consumed by a Belizean household. The basket now has nearly 400 items, and prices are sourced from stores countrywide. According to SIB’s website, the index is compiled quarterly in February, May, August, and November. For the remaining months, the index is based on changes in the food and fuel categories only.
The monetary value of our imports is usually over three times the value of our exports. And given our dependence on imports, a substantial portion of our inflation is imported. But because Belizean governments obtain a large portion of public finances from a narrow range of taxes, prominent among those being taxes on imports, imported inflation actually represents a windfall for GoB taxes. GoB benefits at the customs border and later at the stores, since those inflated goods are also GST taxable.
But therein lies the dilemma for the Government of Belize. Inflation discourages savings, worsens income distribution, ignites wage demands, impoverishes pensioners, and makes local production more expensive and less competitive. The obvious challenge to Government becomes balancing the revenues being earned from higher prices with those negative effects of the rising cost of living on the country’s population. Implementing price controls and deploying its resources to monitor and counter “price gouging,” however defined by Government, won’t ever be effective long-term strategies.
While America has imposed tariffs on our trading partners, rhetoric from the American president can be interpreted to mean that such tariffs can be imposed directly on possibly other countries, including Belize, as early as April. At present, virtually all of Belize’s exports to the USA are duty-free due to the Caribbean Basin Initiative. Conversely, exports from the USA to Belize face tariffs in Belize, which, as noted earlier, are a major source of revenue for Government. Mr. Trump is now threatening reciprocating tariffs on all countries, treaty obligations notwithstanding. This would doom the CBI as we know it. The obvious hope, therefore, is that such rhetoric never becomes actual policy.
The American president has also threatened to impose tariffs on countries that import oil from Venezuela. Not certain if Belize does, but some of our trading partners do. The United States has also designated the use of health professionals from Cuba as human trafficking. Belize and many other countries rely on these health professionals.
Many countries have started the process of “Trump-proofing” their economy. This involves incentivizing the production and consumption of local products, encouraging value addition to local production and service-based industries, and initiating alliances with other countries, invariably to reduce their dependence on the uncertainties created by the current USA administration.
We will know when the trade war reaches us and we become collaterally damaged when the rate of inflation heads skyward. At SIB’s most recent press conference, the rate for February was cited at 1.9%. However, all of Belize’s national data are weighted averages, and price increases as high as 15.4% were seen in some categories of goods. How the Government of Belize navigates these threats to the national economy will be a defining and watershed moment in Belize’s post-independence economic history.
Send comments to pjcastillobz@gmail.com
Comments