C – 11 | CHATTING WITH GPT – TRADE WARS AND TARIFFS

I decided to chat with GPT again, the closest there is to a conversation with a rational person. Powerful tools should be used. After playing around with GPT for some time, I found that even though it still is not 100% accurate or complete, it is good enough to use seriously. It still is a good idea to double-check and compare its answers against literature, news, knowledge bases, etc. But it is good enough for me to chat with it and ask its opinion. So, this is the opinion-blog “CHATTING WITH GPT”. The answers are fully credited to the AI.

This week’s Chat: The (menacing) trade war between the USA, Canada, Mexico and China and its effect on the world.

 

My motivation for this question, as an economist, is that trade wars seldom have winners and can have lasting negative effects. More importantly, what can we expect as a Caribbean nation (Curacao) for our local economy and what can we do to adjust in these turbulent times?

So, what does GPT think about this. Let’s do this and see what we can learn.

ME: What effect would a trade war, using tariffs, between the USA, CANADA, MEXICO and CHINA have on the world economy, the value of the dollar, and trade in the Caribbean?

GPT: A trade war involving the USA, Canada, Mexico, and China, with tariffs as the primary tool, would have significant consequences on the world economy, the value of the U.S. dollar, and trade in the Caribbean. Here’s a breakdown of the likely effects:

Impact on the World Economy

1. Slower Global Growth: Tariffs increase the cost of goods, leading to higher prices for consumers and businesses, reducing global demand. The disruption of supply chains, especially for industries like automobiles, technology, and agriculture, would slow economic activity worldwide. Emerging markets that depend on stable global trade flows (like Vietnam, India, and Brazil) would suffer from reduced exports.
2. Shifts in Manufacturing & Supply Chains: Companies reliant on China, Mexico, or Canada for cheap manufacturing would seek alternative markets (e.g., Vietnam, India, and Southeast Asia). Some U.S. and Canadian manufacturers might relocate production domestically or to non-tariffed regions to avoid duties.
3. Financial Market Volatility: Stock markets would react negatively to tariff uncertainty, impacting business confidence. Commodities like oil, metals, and food products would experience price fluctuations as trade barriers alter supply-demand dynamics.

 

Effect on the Value of the U.S. Dollar

1. Short-Term: Dollar Strengthens: In the short term, investors might view the USD as a “safe haven”, strengthening its value as capital moves into U.S. assets. Higher tariffs could lead to a reduction in imports, decreasing the U.S. trade deficit, which may support the dollar.
2. Long-Term: Dollar Weakens: If tariffs cause a U.S. economic slowdown, the Federal Reserve may cut interest rates, making the dollar weaker. If China retaliates by devaluing the yuan, the dollar might strengthen artificially, making U.S. exports more expensive and hurting U.S. competitiveness. Global de-dollarization efforts could accelerate, as countries seek alternative trade agreements (e.g., using the Euro or Yuan for trade with China).

 

Impact on Trade in the Caribbean

1. Tourism & Investment Hit Hard: The Caribbean relies heavily on U.S., Canadian, and Chinese tourism. A trade war would hurt consumer spending, reducing travel demand. Chinese foreign direct investment (FDI) in infrastructure (ports, roads, telecoms) could slow if China redirects its resources.
2. Agricultural & Manufacturing Disruptions: Caribbean exports (like bananas, sugar, rum, seafood) to the U.S., Canada, and China could face higher tariffs or reduced demand. If China shifts its food imports away from the U.S., Caribbean producers might benefit by filling the gap (e.g., in seafood or fruits).
3. Currency Volatility & Inflation: If the U.S. dollar strengthens, Caribbean economies (which often peg their currencies to the USD) could experience higher import costs, leading to inflation. If the U.S. dollar weakens, imported goods from China (electronics, machinery, textiles) could become more expensive, hurting businesses and consumers.
4. Opportunities for Alternative Trade Agreements: Caribbean nations could diversify trade partners, negotiating with Latin America, Europe, and African markets to mitigate tariff shocks. Regional trade blocs (e.g., CARICOM) might push for stronger intra-Caribbean trade, fostering self-sufficiency.

 

The trade war would slow global growth, disrupt supply chains, and create financial instability. The U.S. dollar would likely strengthen initially but weaken long-term depending on Fed policy and global shifts. The Caribbean would suffer from tourism losses and currency volatility but could find new export opportunities.

ME: Elaborate more on the effects for the island of Curacao

GPT: Curaçao, as a small, open economy heavily reliant on trade, tourism, and financial services, would feel both direct and indirect effects from a major trade war involving the USA, Canada, Mexico, and China. Here’s how it would impact Curaçao’s key sectors:

 

Impact on Curaçao’s Trade and Imports

1. Higher Costs for Imported Goods: Curaçao imports most consumer goods, machinery, electronics, and raw materials—many of which come via the USA, Europe, and China. If a U.S.-China trade war leads to higher tariffs on Chinese goods, prices for imported electronics, textiles, vehicles, and construction materials in Curaçao could increase. This could result in inflation, making everyday goods more expensive for businesses and consumers.
2. Potential New Trade Alliances: If trade with the U.S. and China becomes less favorable, Curaçao might strengthen ties with Latin America (Colombia, Brazil) or Europe (Netherlands, EU) to secure alternative suppliers. Local businesses may turn to regional Caribbean markets for raw materials and finished goods.

 

Effects on Curaçao’s Tourism Sector

1. Decline in North American Visitors: The USA and Canada are major tourism sources for Curaçao. If a trade war weakens their economies, fewer tourists may visit. Rising airline costs (due to tariffs on aircraft parts, fuel, and maintenance) could make flights to Curaçao more expensive, reducing visitor numbers. The luxury tourism sector (cruise ships, high-end resorts) might take a hit as North American travelers cut discretionary spending.
2. Mixed Impact from Chinese and European Tourists: If China’s economy slows down due to tariffs, fewer Chinese tourists will travel to international destinations, including Curaçao. However, if the U.S. dollar weakens, Curaçao could become more attractive to European tourists (as their purchasing power increases).
3. Cruise Industry Disruptions: Curaçao’s cruise tourism could be impacted if U.S.-China tariffs increase costs for shipbuilding, fuel, and operations. Fewer cruise ships stopping at Curaçao would hurt local businesses relying on day-trippers and shopping tourism.

 

Financial Services & Offshore Sector

1. Stronger U.S. Dollar Could Benefit Financial Services: Curaçao has a significant financial services industry, acting as a hub for offshore banking and investments. A stronger U.S. dollar (short-term effect of the trade war) could make Curaçao a more attractive financial center for investors holding U.S. assets.
2. Risk of De-Risking & Banking Challenges: If the trade war escalates, Curaçao’s offshore financial sector could face stricter compliance regulations from the U.S., affecting access to international banking networks. Increased U.S. scrutiny on global transactions could lead to de-risking, where major banks reduce correspondent banking relationships, making it harder for businesses to operate.

 

Inflation & Currency Effects

1. Increased Cost of Living: If the U.S. dollar strengthens, imported goods (including food, fuel, and consumer products) will become more expensive in Curaçao. Since Curaçao’s guilder (ANG) is pegged to the USD, any global inflation from the trade war would translate directly into local inflation.
2. Opportunities for Local Production: If imported goods become too expensive, Curaçao might encourage more local food production and agriculture. This could lead to government incentives for self-sufficiency, supporting farmers, fisheries, and small-scale manufacturing.

 

Shipping & Logistics: Curaçao’s Role as a Trade Hub

1. Port of Willemstad Could Be Affected: Curaçao is a strategic transshipment hub for goods moving between the Americas and Europe. If U.S.-China tariffs disrupt global supply chains, Curaçao’s port activity might decline due to reduced global trade volumes. However, if companies reroute supply chains away from China and Mexico, Curaçao might attract new regional trade routes.
2. Air Cargo Costs Could Rise: Many goods arrive in Curaçao via air cargo from the USA and Europe. If airlines face higher costs due to tariffs on aircraft components and fuel, shipping costs to Curaçao could increase.

 

Mixed Effects for Curaçao

🔴 Negative Impacts:

1. Higher prices for imported goods and fuel → Inflation risk.
2. Fewer U.S. and Canadian tourists → Tourism slowdown.
3. Possible disruptions to the offshore banking sector.

🟢 Potential Opportunities:

1. More European tourists if the USD weakens.
2. New trade partnerships with Latin America & Europe.
3. Growth in local industries (agriculture, small manufacturing).

 

Overall, while a U.S.-China-Canada-Mexico trade war would bring economic risks to Curaçao, there could be new opportunities if policymakers and businesses adjust trade strategies and focus on economic diversification.

 

ME: Ok thanks for your input on this subject. Here are my final thoughts on this subject. In today’s interconnected world, manufacturing is no longer confined to a single country. A single product, such as my iPhone or my car, relies on a global supply chain that spans multiple nations. Minerals may be mined in Africa, refined in China, processed into components in Mexico, assembled in the United States, and sold in Europe. This seamless international cooperation allows for efficiency, specialization, and lower production costs.

However, when tariffs are imposed, they disrupt this intricate network. Tariffs increase the cost of raw materials, intermediate goods, and final products, forcing manufacturers to either absorb the cost (reducing profits) or pass it on to consumers (raising prices). Rather than protecting domestic industries, tariffs often lead to higher prices for businesses and consumers alike. Keep also in mind that there can be a compounding effect of imposed tariffs as borders are crossed.

In the end, no country operates in isolation. In a global economy, barriers like tariffs only hinder trade, slow economic growth, and make essential goods more expensive, hurting the very people they are meant to protect. So good luck with that Donald.

 

(Answers are credited to GPT4, most pictures credited to DALL-E, also an AI)

Dieudonne (Neetje) van der Veen is a financial and management business advisor. His work and experience are mainly in the field of financial management and structuring of companies in distress and Governance on Planning & Control cycles.

Mr. van der Veen has a master’s degree in business economics (Erasmus University Rotterdam), is a Registered Accountant (Royal Dutch Professional Organization of Accountants), CFE (Certified Fraud Examiner) and CICA (Certified Internal Control Auditor).