Economic slump, a forewarned risk of escalating global trade war

Tuesday, 2018-07-31 11:14:55
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Director-General of the WTO, Roberto Azevedo, warns that the serious consequences of retaliatory tariffs between the world’s leading economies will occur in the future and harm the global economy. (Photo: Reuters)
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NDO – The global trade war is in danger of spreading on a large scale. The World Trade Organisation (WTO) reported that within just seven months, the WTO member countries have imposed 75 new trade-restrictive measures. These barriers to trade not only hamper the world’s economic growth, but also cause many implications for the global trade system.

During a recent news conference at the United Nations headquarters, Director-General of the WTO, Roberto Azevedo, warned that, despite having yet to be seen at present, the serious consequences of retaliatory tariffs between the world’s leading economies will occur in the future and harm the global economy. The aforementioned warning came as US President Donald Trump’s administration officially ignited a new trade war with China, the European Union (EU) and several other partners last June.

Starting from July, Washington has imposed a 25% import tariff on 818 categories of goods from China, with a total import value of US$34 billion annually. In response, Beijing has imposed a 25% import tax on the same volume of commodities imported from the United States. Tensions escalated as President Trump warned of his readiness to impose duties on all imports from China. The Chinese side issued corresponding retaliatory actions and declared that they wouldn’t step back in the trade war with the US. Earlier, Washington imposed respective tariffs of 25% and 10% on the steel and aluminum products imported from EU member countries. In early July, the US President also threatened to impose a 20% tariff on all EU-assembled automobiles. In reply, the EU sent a 10-page document to the US Department of Commerce, warning that such a tax imposition would adversely affect the US’s auto industry and that Washington could face retaliatory measures worth US$294 billion from its trade partners.

The WTO recently released a report showing an increase in trade-restrictive measures amid the escalating trade war between the world’s largest economies. Accordingly, in the period from mid-October 2017 to mid-May 2018, an average of 11 new measures were applied by the WTO member countries per month, which is higher in comparison to the average of nine measures recorded in the previous report covering the period mid-October 2016 to mid-October 2017. Before the WTO issued the aforementioned warning, Russian news agency RIA Novosti quoted experts as saying that if the trade war was not extinguished in the shortest period of time, the global economic space would face a major transformation. Accordingly, in the short term, within the next one or two years, the world will be “submerged” in the statements of reciprocal retaliations on tariff increases and tightening trade policies.

Meanwhile, the International Monetary Fund (IMF) released a new report stating that, in the short term, if the US’s trade deficit continues to increase to a higher level than the 2017 figure of 2.4% of the GDP, the trade war will become more serious. The US administration will possibly step up financial stimulus measures and continue to offer tariff solutions to reduce trade deficits with its partner countries. According to the IMF, if the threatening statements turn into concrete actions and erode trust, the negative effects on economic growth are inevitable. The worst-case scenario is to pull the world’s economic growth momentum back 0.5% by 2020.

However, a slump in economic growth is not the only consequence that could be seen immediately from the escalating global trade war. The trade war risks changing and distorting the global trade system that has been running smoothly for many years. In his speech last weekend, the WTO director-general expressed his concern that barriers to trade could become a “new normal state” in international trade relations.

The global trade war with the forewarned losses requires an urgent response from the international community. The WTO needs to be strongly reformed as it no longer responds to rapid changes in the world trade practice. The aforementioned reality also forces each country to rapidly adjust their development strategies and policies in order to adapt to the world’s new trade environment. In addition, solidarity to prevent protectionism is becoming increasingly imperative to every nation. Economic experts suggested that “solidarity to stand firm” is a common message that every nation and every international organisation must pay attention to and act on for a fairer, healthier and more equitable development environment for all economies in the world.