Originally appeared on The Morning
By Dhananath Fernando
Pointless discussing ‘Biden effect’ on SL without fixing our economy’s structural issues
It was shortly after my graduation. I was shortlisted for an interview and was close to being late for it. I reached the office and got into the elevator when I saw a gentleman running to catch the same elevator. As I was running late, I pretended not to have seen him and allowed the doors to close. I made it to the interview just on time but as I entered the Board Room I was told that one interviewer hadn’t arrived yet. After a few minutes, the gentleman whom I had left behind downstairs filled the main interviewer’s chair. As he introduced himself, he jokingly said: “I couldn’t catch the elevator with you – if I did, we could have had a real elevator pitch. So, what’s your pitch for us?”
With that question, I realised that punctuality is important but punctuality is important not for the sake of being punctual! Punctuality is a sign of respect and value for other people, and it is these human connections that matter. Courtesy and manners are pretty much a reflection of who you really are. Transactions are not just transactions. It is an exchange between people who connect, respect each other, and do business. This incident comes to mind when I think of the many opinions that have been expressed on the impact of the US presidential elections on Sri Lanka. This is because the image of respect and courtesy still matters, especially in terms of relationships between countries.
Many people see diplomatic relations almost as something imagined, intangible, theoretical, and conceptual. But in the real world, diplomatic relations are all about human connections. It’s people who trade with each other and not countries. It’s people who draft policies and make decisions and not countries. The impact of the US presidential elections has to be viewed in this context backed by a sound understanding of the country’s economic affairs.
Sri Lanka has made headlines across international media for our strategic location and the resultant geopolitical value to both the US and China. Recent visits by high-level delegations from both these nations have further highlighted this importance. This has led to various opinions being floated around about the impact of a Republican or Democratic win on Sri Lanka.
US elections are pivotal not only for Sri Lanka but for the entire world. This impact can be seen in how global financial markets fluctuate based on US political developments and how countries make strategic plans, long or short term, based on the policies of the US administration. For Sri Lanka, this time, the results of the US elections are much more significant, especially due to the current geopolitical arm wrestling in the Indian Ocean region.
Economics and geopolitics are strongly interconnected, and Sri Lanka is no exception to this rule. However, before we analyse the effects of the US election on Sri Lanka we need to understand the interests that all nations have in the Indian Ocean region and observe their current geopolitical alignments.
Currently Japan, India, the US, and Australia – referred to as The Quad – have established strong economic and military ties with each other. Sri Lanka’s significance comes into the picture as our geographic location is at a peripheral level where it can directly affect India’s trade and defence activities and their presence in the Indian Ocean. The US for that matter also has a long-term strategy for the entire Indo-Pacific region. So regardless of which US President is at the helm, it is most likely that the Indo-Pacific strategy will continue. Their main interest seems to be ensuring supply chain security and protecting the freedom of navigation within the Indian Ocean.
From Sri Lanka’s point of view, one main factor that we should focus on is our ability to trade and gain access to international markets. The US is the destination of about 25% of our exports, of which a significant proportion is in apparel products. We also export tea to the Middle East where the US has significant diplomatic clout and where US policy decisions tend to directly affect global oil prices, affecting countries such ours. Another 15% of our exports are purchased by the European Union (EU) which also represents the western bloc. For Sri Lanka, the continuation of the EU’s Generalised Scheme of Preferences Plus (GSP+) tariff concession is of paramount importance.
The second factor is the relationship the US has with China which will affect Sri Lanka on trade and investment. Already, the Port City and the Hambantota Port and economic zone are major Chinese investments and the policy direction taken by the office of the US president on these matters can have a significant impact on the island.
Donald Trump’s protectionist policies, “America First” to be precise, and the US-China trade war has affected global trade to a great extent. When it came to the region, his relationship with India was his priority. A second Donald Trump term would mean that much stricter policies against China will be implemented. This is because he would no longer be shackled by the impact on his voters or the economy from the retaliatory trade measures by China. Simultaneously, under a Joe Biden presidency, there is greater room for China to be held accountable for alleged human rights violations.
A Biden presidency would not really shift away from a hard policy stance on China, especially because Trump’s overall stance on China enjoyed bipartisan support in the US, even if some of his methods and measures came in for criticism. There may be relaxations in the trade war, but it would be hard to expect a significant policy shift, especially considering the nature of global geopolitics. This must be considered when looking at our foreign relationships because managing this complicated relationship has a direct impact on Sri Lanka retaining concessions such as GSP+. We must be able to diplomatically negotiate our way through opposing geopolitical partners. Diplomacy must be used to secure our trade-related activities regardless of who becomes the President of the US.
Once again, it is important to remember that the US foreign policy has a long-term strategy for the Indo-Pacific region. Therefore, a change at the Oval Office can have an impact on the foreign policy direction taken by the US. However, it is very unlikely that the US will take a complete “U” turn in most policy matters.
It is about time Sri Lanka took an interest in diversifying its export markets to Asia and increasing its exports. At the moment, we have placed too many eggs in one basket. We are almost wholly dependent on the western bloc for our export revenue. We need to maintain a good relationship with China as the ability to import at reasonable prices from China is what helps us export to western markets at competitive prices.
Challenges faced by Sri Lanka, such as our extremely poor economic competitiveness, cannot be ignored and have little to do with external factors such as who takes the presidency of the US. Our policymakers have to make our economy better by having an export-oriented, free exchange culture. Like what happened at my interview, it is human connections and how good and open for trade we are that matters. Other factors matter, but the impact of outside matters are based on how good or bad we are in our economic and trade policy.
The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute.