Logo of Phnom Penh Post newspaper Phnom Penh Post - ECB: US can’t win a global trade war

ECB: US can’t win a global trade war

ECB: US can’t win a global trade war

ECONOMIC activity in the United States could fall more than two percent within a year if Washington launched a trade war on a wide front, European Central Bank researchers suggested Wednesday.

The forecast comes as officials like ECB President Mario Draghi and World Trade Organization chief Roberto Azevedo warn of protectionism’s threat to the world economy under President Donald Trump’s “America First” policies.

To test the US-against-all global trade war scenario, the Frankfurt-based experts fed a set of assumptions into economic models produced by the ECB and the International Monetary Fund.

They simulated Washington hitting all imports with 10-percent tariffs and America’s trade partners responding in kind – a far more drastic scenario than Trump has so far toyed with.

As well as the tariffs’ direct effects on trade, the economists tried to capture the effect on public and financial market confidence by simulating a jump in government borroing costs and a slump in global stock markets – as large as 16 per cent for the US.

Under that combined scenario, “real economic activity in the United States could be more than two percent lower than the baseline in the first year alone,” they said.

They further predict that after three years, GDP would still be one percent below its starting level.

‘Clearly worse off’

“An economy imposing a tariff which prompts retaliation by other countries is clearly worse off,” the economists concluded. “Its living standards fall and jobs are lost.”

In trade, while US consumers and firms might gradually switch to buying American in response to more expensive imports, the effect is at first outweighed by the drop in exports as the country’s trade partners buy less.

Companies are also expected to invest less and hire fewer workers, amplifying the braking effect on the economy.

Meanwhile, China is expected to win out in the early stages of the simulated trade war.

With tariffs only affecting trade with the US, other countries could switch to buying Chinese rather than American exports, more than making up for reduced sales to the US.

“The scenario of a global trade war will have a dramatic effect,” WTO boss Azevedo said on Tuesday.

MOST VIEWED

  • Municipal hall releases map detailing colour coded Covid risks by commune

    Phnom Penh municipal governor Khuong Sreng released an official map detailing the red, yellow and dark yellow zones within the city under the new lockdown orders for Phnom Penh announced on April 26. The designation of red, dark yellow and yellow corresponds to areas with high,

  • Inter-provincial travel ban lifted; Phnom Penh and Takmao not exempted

    The government on April 25 decided to lift the inter-provincial travel ban and the closure of tourist attractions across the country, effectively immediately. The travel ban and closures of all resorts were imposed on April 6 and 17 respectively in a bid to curb the spread of Covid-19,

  • Phnom Penh, Takmao lockdown extended for another week

    The government late on April 26 announced an extension of lockdown in Phnom Penh and adjacent Takmao town in Kandal province for another seven days – or longer if residents do not comply with Covid-19 preventive measures and the community outbreak does not subside – until May 5. According

  • Gov't mulls extension of Phnom Penh, Takmao lockdown

    The Inter-ministerial National Commission for the Control and Enforcement of Lockdown held a video conference meeting on April 25 to review a draft document on the extension of lockdown in Phnom Penh and adjacent Kandal province’s Takmao town. The meeting was chaired by Minister of

  • Gov’t issues guidelines as lockdown nears end

    The government has issued a five-page set of instructions to be enforced when the three-week lockdown of Phnom Penh and adjacent Takmao town in Kandal province ends on May 6. According to an announcement signed by Prime Minister Hun Sen on May 4, the instructions cover a

  • Phnom Penh unveils rules for post-lockdown transition

    The Phnom Penh Municipal Administration issued a set of detailed guidelines for the seven days to May 12 after the capital emerges from lockdown at the onset of May 6. In the 14-page document signed by municipal governor Khuong Sreng released on the evening of May 5, the