The political situation in the United States will always have a direct effect on the Cayman Islands economy because of our currency connection, our physical proximity and therefore frequent travel to and from the U.S., our reliance on imported goods from the U.S. and the fact that our tourism industry is so heavily supported by the U.S. market. Our financial services industry plays a crucial part servicing the global economy, helping banks and corporations to lower their costs which will ultimately be passed on to the U.S. consumer.
Ensuring we have a positive relationship with the United States means our economy, which of course includes our real estate industry, can continue to thrive. Our own economy is therefore tightly interwoven with that of the U.S.
The transition of U.S. presidency from President Obama to President Trump will therefore be watched with close scrutiny by all of us in the Cayman Islands.
An historical perspective
It is difficult to ascertain exactly what the impact will be on the Cayman Islands once Trump is the U.S. President, as, at the time of writing, he has not even yet been sworn in as president, so I thought it would be useful to start by assessing how the Cayman Islands has traditionally fared under successive previous U.S. presidencies.
The two sides of the U.S. political spectrum differ vastly in their philosophies as they relate to offshore.
Generally speaking, I believe that the Cayman Islands has done well under a Republican presidency. The reason for this is the Republicans better understand the benefits a tax neutral environment has on business and as a result how the public at large can benefit from this type of environment. Offshore financial centers such as the Cayman Islands provide corporations with the opportunity to reinvest their capital and returns, ultimately providing better share returns for investors and thereby allowing U.S. corporations to compete in this global market place. Employing tax neutral strategies gives U.S. companies the opportunity to afford to hire expensive local labor, benefitting the man in the street and bolstering the American economy. U.S. pension funds invested in offshore funds benefit from their investment’s tax neutral environment and the Cayman Islands is the leading jurisdiction for healthcare captives, representing around a third of all captives, and a very large percentage of this is focused in the main within the North American market. Republicans mostly understand and appreciate all the benefits the offshore financial services industry brings to their own economy.
Negative effects of a Democrat presidency
What usually happens under the Democrats is a clamping down on tax neutral environments in an attempt by the U.S. government to hold on to tax revenue from corporations and individuals, thereby making it harder for offshore financial services to operate and compete with the U.S.
It is interesting to note that, over the past eight years under the recent Obama administration, I have witnessed grave concerns by U.S. investors who have are looking to invest in Cayman Islands real estate. In the main, these investors did not appreciate how their government was spending their tax dollars and they were not happy supporting an environment where monies were taken from those who provided the taxes and revenue, and given to those who did not contribute to the U.S. economy via taxes. Instead, they preferred to look at attractive and secure locations such as the Cayman Islands to make property investments that they felt were sound and would offer steady returns for the long term. This has therefore caused a marked interest by overseas investors looking to expand their property portfolios into Cayman Islands real estate.
There is no denying that President Trump is pro-business and it has been his mantra to grow business and ‘make America great again’, but without a clear stance from the new American president on his administration’s views on the offshore financial services industry, it is difficult to make any predictions as to how this jurisdiction will fare. Time will tell as to whether our relationship with our influential mainland neighbor will benefit from the new Trump presidency.