How would the Trump plan affect the Dominican Republic economy?

Greater oil exploitation would lower tariffs on China and Mexico and give advantages to products from the DR, but there are concerns about how it will finance the tax cuts.

Despite how controversial Donald Trump has been, he has promised two measures that could benefit the Dominican economy.

The first is the possible increase in tariffs on U.S. imports from China and Mexico. The second is the promised intensification of the exploitation of the United States’s oil reserves.

In the first case, and regardless of the adverse collateral effects they may have on the behavior of the global economy, tariff increases could expand the opportunities of the U.S. market for Dominican products and make the Dominican Republic more attractive as a destination for investments in the export sector to replace Asian and Mexican products that lose competitiveness in the U.S. market due to the impact on prices of the tariffs applied.

With the application of tariff increases, which are part of a protectionist trend taking shape in the world after the failure of globalization, as evidenced by the fact that Joe Biden’s own government maintained the tariffs that Trump had imposed on China in his first government, investors interested in producing for the U.S. market could prefer the Dominican Republic instead of China or Mexico as a destination for their investments.

Mexico, one of the Dominican Republic’s main competitors in the U.S. market, would be the most affected country in Latin America if the United States started a trade war with that country.

As for oil exploitation, Trump’s purpose was reflected in these words he pronounced after his victory was announced: “Leave the oil to me, we have more oil and gas than any other country in the world, including Saudi Arabia and Russia, and we are going to take advantage of it.”

Undoubtedly, increased U.S. oil and gas output will increase global supply and could lower oil prices. Trump has promised to cut the energy price in half in just 12 months, which would benefit the Dominican Republic, which does not produce oil. After announcing Trump’s victory, oil futures registered a fall of more than 1.5% in the market yesterday.

The same should not be written about plans to carry out a mass deportation of immigrants, which could imply a reduction in remittances to the country. However, it is essential to note that the Dominican Republic is not currently among the primary senders of illegal immigrants to the United States. Mexico, Venezuela, El Salvador, Guatemala, Honduras, Colombia, and Brazil occupy the main one.

Finally, it is unclear whether Trump’s tax cut plan will be financed with additional tax revenues rather than through an increase in the fiscal deficit and consequent increase in public debt.

If this were the case, it would increase the risk of a financial crisis that would trigger a rise in interest rates and a recession in the world’s largest economy, which would have significant negative repercussions on the Dominican economy.