The US administration has slapped an across-the-board 32 per cent tariff on Fijian goods. The USA is Fiji’s largest export market accounting for almost a third of all exports.
The concern is how this change in the global trading status quo will affect the Fijian economy. This is a good opportunity to look into the role and history of tariffs, both in Fiji and beyond, and to think about what this means for Fiji’s future.
TRADE protectionist intervention, such as tariffs, manipulate the price of products in the destination country and are used to direct consumers to buy local products, which become relatively cheaper.
In fact, prices of global goods are commonly manipulated, not only by protectionist policies, but also by commodity brokers and financial markets, exchange rates and so forth. Therefore, prices shift and vary for many reasons and on a regular basis.
The global demand for a product depends on its use value, competition in the market and the speciality that the product provides. This is referred to as “comparative advantage” whereby a country, or business, may have a comparative advantage in a product, or an industry, because they can operate with lower costs, or the product or industry is unique and difficult to replicate elsewhere.
The ways tariffs have been used have changed over time. After the World War II, protectionist trade policies and the notion that countries should increase their self sufficiency was common. Then there was a shift in the 1970s which ushered in free marketenterprise and trade liberalisation that globalised trade and capital flows. Now, Trump looks to restructure global alliances and reformulate the global economy again – which will set the global economy on a path of fundamental change for the first time in almost 50 years.
What does this mean for Fiji?
Fijian exports to the US such as timber, dalo and kava are niche and unique products where Fiji has a comparative advantage. This will hopefully sustain demand even despite the tariffs. Fish exports, however, face competition from other exporters and domestic US producers, and tariffs may jeopardise its competitiveness. Fiji Water contributes about two thirds of Fiji’s exports to the USA and over one fifth of Fiji’s total exports. However, Fiji Water is a strong global brand with extensive social capital which will help to mitigate against the impact of tariffs.
Even if this global event is not particularly harmful to Fiji, it should awaken policymakers to the potential threat that global economic events can have on the Fijian economy. After COVID, for example, there was strong political sentiment centred around reducing Fiji’s vulnerability to negatively impacting global events. However, it was not long before policies reverted to the longstanding economic rationalism of unrelenting trade liberalisation. This has exacerbated Fiji’s over-reliance on the tourism sector and imports, which creates an ongoing threat to domestic productive capacity and vulnerability to global economic shocks.
Fijian governments have tended to support the services sector through subsidies and tax breaks and have not adequately supported local agriculture and, in more recent times, renewable energy. This preferencing of the services sector has drawn labour out of farming,thus reducing agricultural output and scope to advance the sector. Also, a lack of substantive government investment in the sugar industry has caused the sector to contract, even though the sugar industry has great scope to bolster the domestic food supply (as a key input) and renewable energy production.
The privatisation of EFL has hindered the potential for renewable energy investment by EFL due to the prioritisation of shareholder profits over the large upfront investment required for renewables. Locally produced food cannot compete with mass produced global food exports. The reducing of tariffs on food items over the last few decades – although reducing the cost to the consumer in the short term – has hindered local production and long-term food affordability and security.
The Trump tariffs also provide a wake-up call for Fiji to reassess its comparative advantage and point of difference in the global economy. Fiji’s comparative advantage primarily revolves around its cheap and competent labour force; however, this is not a global contribution that will make the nation wealthy.
The unsettling of the global economy is an opportunity for Fiji to reimagine and strengthen its own economy. Fiji could be taking this opportunity to negotiate tariffs of their own to support their agricultural sector and attempt to genuinely diversify their economy, reduce unnecessary imports and build local capacity, especially for food and energy production.
Furthermore, quality food produced in Fiji tends to seek overseas markets while low quality cheap and unhealthy food tends to be imported for domestic consumption. Fish exports to the US that may no longer have a market there could, with government support, be made available to the domestic market, while tariffs could be used to limit the importation of low quality and unhealthy food, such as low-grade tinned fish.
Trade protectionist policies are nothing new. The US has always, even prior to Trump, used trade interventionist policies. The US actively supports their agriculture sector with subsidies, as does the European Union. Advanced capitalist nations in the past have all established their local industries and advanced their economies by using protectionist trade policies. Even post COVID, many nations engaged in greater protectionism.
Fiji, however, since the late 1970s and the demise of Ratu Mara’s import substitution agenda, has increasingly reduced trade barriers and protectionist policies. Furthermore, Fiji has often been unable to negotiate for trade protectionism with key bilateral partners such as Australia, New Zealand and China, which is partly because of a dependence on aid and grants from these countries. It is no coincidence that the greatest donors to Fiji are its greatest source of imports (except for petrol from Singapore). At the same time Fiji is reliant on debt from multilateral institutions that are key advocates of trade liberalisation.
Instead of becoming a country with a strong economic base and genuine comparative advantage, policymakers have created an economy based on foreign owned services industries and a heavy reliance on foreign debt, aid and investment. Economic growth has been primarily driven by import consumption and not by domestic production.
Therefore, a restructuring of the economy will have to take on a holistic approach. At the same time as engaging in greater protectionist trade policies to boost local industries and negotiating trade agreements that are more beneficial to Fiji, the government must also reduce their reliance on AID, grants and multilateral debt.
While the world is talking about tariffs, Fiji may want to consider a strategy of trade protectionism for themselves to create a more resilient economy. This would do better to ensure self-determination and food and energy security and shield the economy from global economic crises.
- EDWARD NARAIN is an economist and author based in Melbourne, Australia. The views expressed herein are his and not of this newspaper.
