According to The Wall Street Journal, Trump’s trade war may actually be part of a much larger issue: protectionism. Protectionism, which protects countries’ domestic industries by implementing extremely high import taxes, has been ongoing for ten years.
Although President Trump and his administration insist that tariffs are a short-term way to dial up the pressure on other countries, it is in fact dampening U.S. and global economic growth. Retaliation from Trump’s tariffs have led to the average tariff applied on imports purchased by the U.S. to be raised to over 4%.
If Trump does implement more tariffs as he has threatened to do, analyses by Deutsche Bank AG and UBS Group AG estimate that the U.S. average tariff would creep up to over 5%.
The trade war has been costly for businesses, consumers, and the economy as a whole. According to UBS, the trade war has resulted in the U.S. economy being 0.75% smaller than it would have been. The world economy is 0.4% smaller than it would have been without the trade war.
Tariffs may not reveal the whole picture, though. First, applied average tariffs calculates tariffs set on goods that are actually bought, so they can rapidly change if importers think the price is too high and decide to buy elsewhere.
Tariffs also don’t always explain global trade patterns accurately. For example, American cars are relatively unpopular in Europe, not because of EU import duties, but because the cars would not fit as well on the narrow streets in the European countries.
Professor of international trade and economic development at the University of St. Gallen in Switzerland, Simon Evenett, said regulations, tax breaks, and export subsidies distort trade, and have been doing so for many years. Evenett predicts that in 2019, around 73% of global trade will be distorted somehow. 10 years ago, only 35% of trade was distorted. The distortion came as economies attempted to build themselves out of the financial crisis.
“We have a system that has really quite distorted, but it looks open,” Evenett said.
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