“The Unfolding Trade War will not become an Economic Crisis of the scale of the Covid-19 Pandemic…
Interview: Dr Vinaye Ancharaz, International Economic Consultant
… nevertheless, these crises highlight the urgent need for an emergency fund”
* ‘Trade theory teaches us that, for a small country, free trade is the best policy irrespective of what other countries are doing’
* ‘Change was a central focus of the Alliance du Changement’s political agenda
The government has a responsibility to deliver the much-promised change’
The global trade landscape is currently going through a period of significant turbulence, largely driven by the unpredictable policies of the United States and the ripple effects of ongoing trade disputes. In this interview with the Mauritius Times, Dr Vinaye Ancharaz, an International Economic Consultant, offers his perspective on how these international headwinds, particularly the imposed on-off “reciprocal tariff” by the US, could impact the small, trade-dependent island economy of Mauritius in both the immediate and medium term. Readers will surely appreciate that, while there’s no cause for alarmism, the interview strikes a cautious tone and thoughtfully explores policies and measures to address a worst-case scenario.
Mauritius Times: The world is facing today a volatile global trade environment driven by unpredictable US policy and Trump’s trade wars. At the time of this interview, affected countries like the EU and China have already vowed countermeasures, making a cycle of retaliation seem likely. The long-term effects might not be visible yet, but how will all of this impact a small island economy like Mauritius in the immediate and mid-term?
Dr Vinaye Ancharaz: Not only are the long-run effects of Trump’s tariffs unclear, so also are the short-term impacts since much will depend how deep the trade war gets as major trade partners decide whether to retaliate, make tariff concessions of their own, or negotiate with the Trump administration. So, we can, at best, speculate about the near-term effects.
The US initially imposed a 40% “reciprocal tariff” on Mauritius’ exports to the US, but the latest news is that the Trump administration has suspended this tariff for 90 days, which effectively means that Mauritius will now face the baseline tariff of 10% imposed on most countries. This back-and-forth tariff game creates a lot of uncertainty, which is detrimental to economic activity.
It is useful to begin by understanding the origins of the 40% tariff – for its sheer rate defies common sense. Trump’s economic advisors have used a complex formula to calculate the tariffs charged by other countries on US imports, including the compounding effects of currency manipulation and non-tariff barriers. To help your readers understand the tariffs, it would be useful to reproduce the calculation formula. It essentially boils down to
Tariff charged by country j on US imports =,
where X is US exports, M is US imports and j indexes the partner country.
In 2024, US exports to Mauritius amounted to $48 million while US imports from Mauritius reached $234.4 million. Plugging these numbers into the formula gives a “Trump tariff” of 79.5%. The “reciprocal tariff” is simply half of this figure, rounded off.
The tariff rate thus calculated has nothing to do with the actual tariffs charged by Mauritius on US imports – the so called applied Most-Favoured Nation (MFN) tariffs – which currently average a low 1.3%, with a maximum rate of 100% applied on refined sugar. In 2024, US’ top exports to Mauritius included machinery, electrical and electronic equipment, optical apparatus, and medical instruments. Over 95% of these imports are duty-free, including the top 20 US exports to Mauritius. The MFN duty on these products averages a mere 0.5%. So, whichever way you look at it, the 40% reciprocal tariff is disproportionate, illogical and WTO-illegal.
Moreover, the formula used to calculate reciprocal tariffs is inherently flawed and biased against small countries, like Mauritius, that have weak export capacities. It suggests that, for a given level of US exports to country j, the Trump tariff will be lower, the higher the US imports from country j (notice that Mj appears in the denominator). This is clearly counterintuitive.
To be sure, the tariff will have significant, adverse impacts on the Mauritian economy, but the direct trade effects are likely to be moderate, especially now that it has been scaled back to 10%. Mauritius exported Rs 11 billion worth of goods to the US in 2024, representing just 10% of our global exports. The top 5 exports to the US in 2024 were live animals (notably primates), clothing, industrial diamonds, fish and fish preparations, and sugar. Exports of primates, which accounted for 36% of our total exports to the US, are unlikely to suffer much from the 10% tariff since the demand for primates is deemed to be inelastic by virtue of a lack of substitutes. The impact on clothing exports, on the other hand, may be diluted by the fact that most of Mauritius’ closest competitors (China, Bangladesh, Cambodia, Vietnam and, sadly, Lesotho) are slapped with equal, if not higher, tariffs.
The biggest impacts may arise from the indirect effects of an escalating trade war between two of the world’s biggest economies. US has now increased the tariff on Chinese imports from 34% to 125% while China has vowed to retaliate with an 84% tariff on US goods. Such high tariffs could be prohibitive, halting the bilateral trade between the two countries altogether, and pushing the world economy towards a recession, the magnitude of which is difficult to predict at this time. A global recession can squeeze our merchandise exports and, more particularly, our exports of services such as tourism and financial services, to the whole world, not just the US. These impacts will be amplified by uncertainty and the varied responses of affected countries.
Finally, the impact of the escalating trade war on inflation is unclear. On the one hand, fears of a global recession have sent oil prices plunging. The Brent crude has fallen by 20% since 1st April, and this trend is likely to continue in the weeks ahead. On the other hand, tariffs will raise domestic prices of imported goods in the US while retaliatory tariffs will fuel inflation in the countries imposing them.
Whether global inflation will rise depends on how surplus production, if any, is dealt with. If affected countries cut back production in response to higher tariffs in their export markets, prices may rise globally. As a price taker, Mauritius may experience a higher degree of imported inflation. In short, the risk of stagflation – an unpleasant combination of recession and inflation – remains real.
* While the countermeasures of other countries in response to Trump’s tariffs will significantly impact the global economy, are Mauritius’ current trade partnerships sufficiently diversified to shield our highly trade-dependent economy from major disruptions in global trade routes or tariffs?
I believe our export markets are fairly well diversified. The US is our fourth largest market after France (including Reunion), South Africa and UK. Other European countries (such as Spain, the Netherlands and Italy), Madagascar and Kenya and, to a lesser degree, India, are also important buyers of Mauritian goods.
However, diversification, whether in terms of products or markets, can never be enough for a small country. The rise of south-south trade represents an opportunity to turn more to emerging countries and reduce our export dependence on a few developed-country markets. Mauritius should leverage on recent FTAs with Africa, China, India and the UAE to further diversify its export markets.
* Given our mounting public debt, and in comparison to Singapore’s strategic reserves and widely recognized institutional resilience, how constrained is Mauritius in its ability to both weather a potential global trade war and respond with economic support packages should external trade shocks affect local jobs and businesses?
The new government has inherited a fragile economy, the true scale of which was revealed by the ‘State of the Economy’ report. The report brought down the GDP growth rate for 2024 from 6.5% to 5.1%, with latest estimates from Statistics Mauritius pinning it down to 4.7%. The debt-GDP ratio is also above the 80% ceiling. Mauritius narrowly escaped a credit downgrade by Moody’s, which has exhorted the government to implement a fiscal consolidation plan over the next 12-18 months, which it will be watching keenly. All this means that the government has limited resources at its disposal to face a major economic shock.Read More… Become a Subscriber
Mauritius Times ePaper Friday 11 April 2025
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