Economists predict a trade war following the imposition of tariffs by US President Donald Trump could wipe billions of dollars off world output growth, with EU leaders today insisting they “will not be bullied”.
US President Donald Trump last week decided to slap tariffs on foreign steel and aluminium, sparking fears that retaliation from other countries could lead to spiralling economic costs, derailing a global upturn in growth.
Analysis by Oxford Economics shows that if the US exits the North American Free Trade Agreement and unveils broad tariffs of 25 per cent on imports from China and 10 per cent on South Korea and Taiwan, global growth would slow to 2.5 per cent this year, compared to a forecast of 3.2 per cent otherwise.
Such a reduction would translate into a $550bn (£400bn) hit this year alone, based on a 0.7 percentage point hit to the International Monetary Fund's estimate of 2017 GDP.
Meanwhile, research published today by Bloomberg Economics, based on a 10 per cent levy on imports and subsequent retaliation, shows a toll of $470bn in lost growth over the next two years.
“It’s a lose-lose situation,” said Kay Daniel Neufeld, managing economist at the Centre for Economics and Business Research. Even if Trump manages to save some jobs domestically in the industries targeted, “you would lose more through the supply chain.”
The tariffs have not yet been imposed, with US trade representative Robert Lighthizer leading negotiations with parties, including the EU.
The bloc’s trade commissioner, Cecilia Malmstrom, today said the bloc “will stand up to the bullies” who blame trade for the “pains of globalisation”, without explicitly mentioning the US.
Speaking in Brussels, she said some nations use trade “as a scapegoat, and insist we can hide behind walls and borders” as well as recent efforts to use it “as a weapon to threaten and intimidate us”.
The risks of a full-on trade war still remain limited, according to Andrew Kenningham, chief global economist at Capital Economics. He said: “The Europeans are going to be very cautious on how they respond.”
Nevertheless, the tariffs have left many elected members of Trump’s own Republican party aghast, while economists have queued up to warn almost unanimously that the imposition of tariffs will be economically harmful.
Trump today said on Twitter that secretary of commerce Wilbur Ross will be “speaking with representatives of the European Union about eliminating the large Tariffs and Barriers they use against the USA.”
The President campaigned on a platform promising to tear up decades of orthodox thinking in US politics in which protectionism was rejected. He claimed other nations are pursuing anti-competitive practices at the expense of the US economy and jobs. “Not fair to our farmers and manufacturers,” Trump added today.