Protectionist trade policies such as the Trump administration’s metals tariffs and automobile duties are among the greatest risks to global growth, the World Bank said Tuesday.
The world’s economy has reached an interesting and unusual point in the economic cycle as robust expansion prospects clash with trade impediments, Shantayanan Devarajan, acting chief economist at the World Bank, said in a briefing. Global trade has been among the key drivers of gains since mid-2016.
Most recently, the Trump administration ended exemptions for the European Union, Canada, and Mexico on U.S. tariffs of 25 percent on steel and 10 percent on aluminum imposed earlier this year; the move sparked prompt retaliation from the closest U.S. trading partners and criticism from their leaders.
Late last month, Trump – a real estate mogul without political experience prior to winning the presidency – proposed new duties on automobile imports. Corporate executives, economists and GOP lawmakers have all cautioned that such policies heighten the risk of a global trade war that could undermine the economic gains from broad tax cuts passed by the Republican-controlled Congress late last year.
“Unless there is some policy action quite soon, this could be as good as it gets,” Devarajan said.
Ayhan Kose, the director of the World Bank Develop Economic Prospects Group, said major shifts in trade policies in advanced economies can create major hurdles.
“Expansions don’t die of old age,” he said. “They do die eventually, often because of policy mistakes.”
In addition to specific policies, increased rhetoric about protectionism creates policy uncertainty, which can also have a dampening effect on economic growth according to Devarajan.
Dialogue between the U.S. and China, for instance, has become progressively more hostile since the start of the year when the U.S. placed tariffs on imported solar panels and then shifted positions on proposed duties on $50 billion worth of Chinese imports.
Over the weekend, China offered to purchase $70 billion of U.S. goods to end the conflict – if the country agreed to abandon its most recent threats.
