The EU is vulnerable to a slowdown in world trade, as the protectionist movement symbolised by US President Donald Trump threatens to start rolling back globalisation, according to an influential ratings agency.
Europe is most vulnerable to decreasing trade levels because of its high trade intensity, which means it has more to lose from declining exchange between nations, according to economists at S&P Global Ratings.
While Trump’s attacks on trade and supposed currency manipulation by Germany have so far had little time to affect global trade, his rhetoric “could cause a fresh deterioration in the business climate,” said Jean-Michel Six, chief economist for Europe, the Middle East and Africa at S&P Global.
The EU as bloc ranks above China as the top exporter in the world, while only the US imports more of its goods.
“Globalisation has reached a certain limit on creating prosperity” as the potential for catch-up growth slowly fades, said Six.
Over recent decades developing economies have been able to quickly adopt better technology, leading to rapid development allied to lower labour costs. This has undercut manual workers in the more developed nations, resulting in higher unemployment in less skilled industrial sectors.
Slowing world growth, and a change in gear from China as it moves towards a consumption-led economy, have accompanied the rise of protectionist politicians which are dismissed by most mainstream economists.
“Erecting trade barriers will not address the issue,” said Six. Attempts to fight inequality in post-industrial areas caused by globalisation risk “throwing the baby out with the bathwater.”
Trump’s key trade advisor has previously accused Germany of manipulating the euro lower, boosting its exports and “exploiting” the US, with the effect of taking away American jobs.
However, S&P’s research has found little evidence this is the case, with no “meaningful correlation” between the exchange rate and trade surpluses.