According to the World Trade Organization (WTO), global growth is at risk as economic powers retaliate against each other with trade sanctions, and if this conflict escalates, analysts estimate that global economic growth could be reduced by 0.4 percent.
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In its moderate assessment of the burgeoning trade war between the U.S., EU, and China, the WTO emphasizes that the global system of agreed trade rules is “potentially at great risk.” They also warned that economic growth is “in danger” and called for “de-escalation.”
The threat of a trade war was triggered by U.S. President Donald Trump’s move to impose tariffs on steel and aluminum imported from the EU and China. Trump stated that he is acting to protect American jobs and that global free trade has been “very, very bad” for the U.S.
China and the EU have threatened to impose import tariffs on American cars and agricultural products totaling several hundred billion pounds.
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Economists warn that previous trade wars – such as the one during the 1930 recession – exacerbated economic problems and led to rising prices and job losses.
“A worrying trend is the increase in trade restrictions occurring at a time of rising trade tensions and related rhetoric,” the WTO states in its report on trade among the 20 largest economies in the world – a group of countries also known as the G20.
Trade Restrictions
In a report covering seven months – from October 2017 to May 2018 – it states that G20 countries imposed 39 new measures of “trade restrictions” including tariffs on imports. This is double the number of such measures compared to the previous report.
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The report indicates that new sanctions affected $74.1 billion worth of trade – one and a half times more than in the same period last year.
The number of “trade facilitation” measures, which reduced barriers between countries, amounted to 47, affecting $82.7 billion worth of trade. This is half the value compared to the same period last year.
“At a time when the global economy is continuously recovering from the financial crisis, the uncertainty caused by the spread of trade restrictive practices could jeopardize economic recovery,” the WTO stated.
“G20 economies must use all available means to de-escalate the situation and promote further recovery of trade. Further escalations could pose a potentially significant risk to the system itself,” the organization warns.
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Increased Tensions
The WTO’s warning is likely to heighten tensions with U.S. President Donald Trump, who has stated that current trade rules discriminate against the U.S. and has attacked the Geneva-based organization, established in 1995 to promote and oversee trade liberalization.
The WTO disagrees with the U.S. President’s analysis, stating that fewer trade barriers support growth and jobs – not only for emerging markets like China and India but also for countries like the U.S.
Economic models show that lower tariffs on imports often imply cheaper goods for consumers. If China and the EU decide to respond to U.S. threats, millions of American jobs related to food and car exports could be at risk, economists claim.
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Latest Threats
The Oxford Economics Institute stated that recent threats of further sanctions from the U.S., EU, and China could mean an additional increase in tariffs on another 4 percent of global imports.
“We estimate that tariffs imposed so far amount to $60 billion, or 0.3 percent of global trade, but this will rise to over $800 billion in trade,” they said from the Institute.
“The current trade dispute threatens to worsen the protectionism that has been visible over the last twenty years. The lack of trade liberalization is particularly significant in advanced economies, where tariff levels have remained at early 2000s levels, and both the U.S. and EU impose significant non-tariff barriers.”
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Oxford Economics also stated that if the trade war escalates, global growth could decrease by 0.4 percent, wiping out hundreds of billions of pounds in value from the global economy.
