The interlocking of horns in a well-laid-out democratic structure can be a sight to behold. Take for example, the obduracy with which the United States Federal Reserve (Fed) annoys President Donald Trump by doing what the business-man in him hates - raises interest rates. But as the Fed chief said his job was to ensure the US economy was balanced and not getting poorer. The rate rise, the fourth this year and expected to be followed by another two next year, is an advance buffer against a possible worldwide recession requiring funds. Having come at a time when inflation was under control and jobs were being added to the economy, the rate rise is not ill-timed. Puzzled experts are however trying to figure out where all of this raised capital is ending up. It will slow down an economy that just lifted its head from stagnation.
The beauty is that the President doesn't intervene because it's not done. It is one of a few instances where the presidential preference isn't allowed and highlights the check and balance process in vogue in the United States.
However, the impact on the world is significant and Bangladesh is not excluded. Worldwide stock markets have reacted and Europe is bracing for a bigger than usual hit where overnight companies will become cheaper and products lose profits vis-a-vis the greenback. Loans suddenly got dearer and exports got more expensive. India, battling to keep the rupee afloat, will be badly hurt even as it seeks a new central governor. China, struggling to adjust within a three-month window to redress US trade imbalance woes, will be sobered up further with their exports becoming more expensive and thereby less attractive. In Bangladesh, expect the exporters, especially ready-made garments, to push the government for devaluation of the taka, a phenomenon that has been carefully avoided for quite a while. And we can expect more selling of the greenback by the Bangladesh Bank to prevent any slide of the Taka.
Imports from the US will become more expensive and overall costs - especially products taxed on tariff rates, will multiply in costs. Essentially Bangladesh doesn't import bulk products so the affect should be cushioned. But any major product import under agreed treaties or agreements will cost more. Bangladesh's concern lies in the destination of bulk of its imports. If Chinese or Indian imports become more expensive, inflation will be triggered creating pressure on the economy. Where the pinch really will be felt is in the import of fuel both oil and gas. Saudi Arabia's ambitious economic forecasts ensure oil revenues will continue to be their mainstay.
The message is clear. As countries become more protectionist and throw the World Trade Organisation (WTO) rule book out of the window, the need is for alternatives or import substitutes. Mr. Trump isn't giving China options; thankfully, we can count our blessings.
The writer may be reached at: [email protected]
