JAMAICA’S economy is expected to exit its current slump next year but remains at risk from protectionist moves that US president-elect Donald Trump said he will implement when he returns to office in early January, the Bank of Jamaica (BOJ) said, though it added that it will have to wait to see which of the proposed policy shift is “feasible” before formulating a response.

Trump, who defeated Democrat challenger Kamala Harris in the US presidential election in early November has often talked about imposing tariffs, or import taxes, on foreign goods as well as plans to deport millions of immigrants. His latest pledge is to impose tariffs of 25 per cent on Canadian and Mexican imports, and an “additional” 10 per cent tariff on Chinese goods as soon as he takes office in January. Trump, who announced the plans last Monday on his social media platform,
Truth Social, said the measures were in response to Canada and Mexico’s failure to keep undocumented workers and drugs from flowing across the US border.

Jamaica’s central bank, noting the stance, warned in notes accompanying its last monetary policy committee (MPC) decision that “uncertainty related to potential economic policy changes among Jamaica’s main trading partners could have adverse implications for investment and remittance inflows, as well as inflation expectations”.

Asked how the central bank is preparing to respond should Trump carry through on his threats, Robert Stennett, the central bank’s deputy governor with oversight of the research and economic programming and financial stability portfolio, replied: “The short answer is that we’ve started preliminary work, but clearly, what has been announced to date cannot be seen as declarative policy directions that the government will take, so we are going to wait until we have more clarity about exactly what will be done before we can formalise our thoughts.”

Stennett pointed out that the bank is, however, for now keeping itself informed about the discussions surrounding the Trump plans.

“We are aware that there are plans to implement tariffs on goods coming out of China and other countries, we are aware of a proposal to cut taxes, we are aware of a plan to undertake mass deportation, and finally there are plans to increase US oil supply. The impact of all of those policies has been assessed by international commentators and we are aware that the impact on GDP estimates range anywhere from 1 to 2 per cent on the US economy,” Stennett added.

“When we take those into consideration, we also consider that inflation in the US could rise, and where prices coming out of the US are higher, then those will affect us here in Jamaica,” he continued.

Jamaica’s economy is projected to decline this fiscal year but rebound to grow by between 1 per cent and 3 per cent in the 2025/26 fiscal year. It is not clear to what extent the central bank’s forecast takes into consideration Trump’s proposals. Similarly, on the inflation side, it is not clear if the forecast for price increases to remain in the 4 per cent to 6 per cent target range includes preliminary estimates about the likely impact the Trump tariffs could have on the prices of goods in Jamaica.

“Broadly speaking, these policies are likely to affect expectations,” Stennett pointed out. Those expectations to which he refers are from business leaders who set prices. In BOJ’s September 2024 survey of businesses’ inflation expectations, these businessleaders lowered their expectations for inflation 12 months ahead to 7.6 per cent from 8.2 per cent, a continuation of a downward trend since the middle of 2022.

Yet, the threat of imported inflation from the United States is exacerbated by how dependent Jamaica’s economy is on that of its northern neighbour. The United States is Jamaica’s biggest trade partner, providing about 40 per cent of the country’s imports and taking a similar 40 per cent of Jamaica’s exports. In figures, that was US$3.9 billion in 2023 out of total trade of US$9.5 billion in that year. From January to July in 2024, the trend continued with two-way trade valued at US$2.1 billion from total trade for that period of US$5.44 billion.

In addition to that, about three out of every four tourists visiting the island come from the United States while 68 cents of every dollar of remittance inflow also comes from that country.

“To the extent that Jamaican nationals are involved [in the mass deportations]…then remittance flows could be affected and maybe other potential foreign exchange flows will be affected,” Stennett noted.

“But I would hasten to say these are worst-case thought processes that we are going through. We have to wait until we see exactly what is feasible in the context of the US Administration for these to be done and then we will be able to more declaratively assess the impact on Jamaica and potentially communicate our thoughts.”