TABLE FOR TWO

Ecuador is poised to write a new trade agreement with the US in the middle of a trade dispute between Washington and Beijing. With the trade war still looming large, it represents an opportunity for Quito to seek a better deal.

DIPLOMATIC RELATIONS between Ecuador and the US began, somewhat informally, in 1832 under the administration of President Andrew Jackson. Jackson, like the current occupant of the White House and increasing other leaders of the decade, was not a fan of central banks making macroeconomic policy independent of his will. Luckily for Ecuador, this is not Trump’s top priority. That may help it negotiate a favorable trade deal, as the White House remains preoccupied with wringing an agreement out of Beijing. Nevertheless, Ecuador cannot escape being caught in the crossfire of the ongoing trade dispute, as American officials will likely demand the US remain Quito’s priority over China. Managing that demand, along with balancing demands from the two enormous powers, will be the job for Ecuadorian negotiators. Today, the US is Ecuador’s largest trading partner, with about USD6.7 billion in exports to the US and importing USD5.8 billion of goods in 2018, according to US government figures. That deficit is good for Ecuador, since it means the trading partnership serves as a significant source of income. Compared to the country’s roughly USD100-billion GDP, imports and exports to and from the US represent a significant chunk of the economy. Ecuador uses the dollar as its currency, however, so is at the mercy of the US federal reserve when it comes to the price of its exports and cost of imports. According to the US State Department, major US exports to Ecuador include petroleum products, machinery, computers and electronic equipment, chemicals and fertilizers, transportation equipment, and cereals and grains. Meanwhile, Ecuador benefits from tariff-free entry into the US for many of its products under a generalized system of preferences, a system that allows for reduced tariffs on certain products. Its largest imports into the US are crude oil, shrimp and prawns, bananas and plantains, cacao, and cut flowers. Ecuador’s previous government had canceled the country’s FTA with the US, but a new government under President Lenín Moreno is looking to establish a new FTA that will help boost the economy alongside other partnerships in the region and across the Pacific. Under President Trump, US diplomacy has attempted to make the western hemisphere a greater priority for extending Washington’s sphere of influence. It is a somewhat more primitive version of US foreign policy, one more similar to the kind implemented 100 years ago under the Monroe Doctrine, which sought to undermine European influence in Latin America. Today, Americans are competing with China instead of Europe for economic might in the region. And while the US is the top export destination for Ecuadorian goods by a wide margin, China and the US are tied for share of imports, at about 19% of the total, according to the Observatory of Economic Complexity. This dynamic is also somewhat symbiotic. The low cost of Chinese consumer goods allows Ecuadorians save money to buy more expensive imports. In return for more US access to the Ecuadorian market, officials in Quito would be wise to demand more from the US in terms of development aid. The US Trade and Development Agency has restarted efforts to develop Ecuador’s infrastructure. At a time when the White House is skeptical of handing out development aid, Quito should capitalize as much as possible on being the exception. Boosting telecommunications infrastructure could also help Ecuador achieve economic diversification, rendering it less reliant on the price of oil to sustain economic growth. Looking to the future, diversification may even allow the country to stay clear of picking either side in the trade war and avoiding any vitriol that may find itself expressed through trade tariffs, or worse, an angry tweet.