Globalizat­ion not perfect, tariffs pure ignorance

Dünya Executive - - REPORT - Murat BASBOGA

First things first. Internatio­nal trade is not a zero-sum game. It increases the size of the global economic scale by enabling companies and countries to specialize in what they do best.

There’s an active link between global trade and economic growth in the developed world. After seven years of caution, 2017 marked the partial return to normal cyclical dynamics. The G7 real GDP growth accelerate­d from a low of 1.3 percent year-on-year in the first quarter of 2016 to 2.3 percent in the fourth quarter of 2017, while global trade volumes rose from 0.7 percent to 4.6 percent over the same period.

Although the vast majority of workers in the developed world benefit from globalizat­ion through better goods at lower prices, the real costs to those workers who lose their job in the process are highly visible. Government­s need to address the grievances of disenchant­ed workers.

Along with tax reform and immigratio­n, trade is one of U.S. President Donald Trump’s ideologica­l pillars. Evidence of his resolve can be found in the ongoing negotiatio­ns to revise the 1994 North American Free-Trade Agreement (NAFTA), the imposition of tariffs on imported solar panels and oth- er white goods, and current Section 301 and 232 investigat­ions into China’s trade practices. Perhaps now more than ever, the threat of a tit-for-tat trade war is high, and commoditie­s are probably not immune to new tariffs and trade quotas.

At last, President Trump’s decision to levy new tariffs on U.S. imports of steel and aluminum from all countries except Canada and Mexico reflects economic ignorance of the worst kind. According to news reports, Europe has said it would impose retaliator­y tariffs on U.S. goods, while China reflects on its own set of possible countermea­sures, including taking aim at the $10 billion soybean U.S.-toChina import market.

A history lesson: In 1930, the U.S. started a global trade war with its Smoot-Hawley tariffs, raising almost 900 import duties. By the mid1930s, global trade had halved. A misguided policy intended to support U.S. domestic industries simply worsened the Great Depression.

All economic textbooks argue that more trade equals more productivi­ty. Countries benefit from rising trade even if their trade balance does not improve.

The impact of protection­ist measures on global trade would dent economic prospects across the world, and affect every sector of the economy. The highly globalized tech sector could see dwindling demand, while the metal-intensive automobile industry could face price-induced demand destructio­n in the US.

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