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Discussion Paper Trade war Trump
28.11.2018

Global Trade War: Where Do we Stand Now? What Impacts?

Published 

28 November, 2018

> 10 minutes
28.11.2018
Global Trade War: Where Do we Stand Now? What Impacts?
Published 

28 November, 2018

> 10 minutes
 

A few days before the important meeting between U.S. President Donald Trump and Chinese leader Xi Jinping, it is important to have a clear view on the trade dispute between the two countries and on the potential impacts of a trade war.

In any case, 2018 will remain a landmark year, one that goes hand in hand with an increase in trade tariff measures and that marks the intensification of the trade dispute between the United States and countries such as China, Mexico and Canada in particular. As mentioned, it could also be the year that marks the beginning of a real trade war. We are not there yet, if we consider the current situation as being rather a war “United States against the rest of the world”, but also if one relies on the level of the increases of the tariffs, far removed from those prevailing in previous trade wars. Nevertheless, given the increased importance over the decades of the indirect effects of tariff increases (impacts on risk aversion, perception of the risk of a global trade recession but also of global growth, wealth effects linked the potential impact on the financial markets, lower confidence indices and therefore consumption and investment ...), there is already something to worry about, and all the more so that dominates the impression that D. Trump is not going to stop there.

With a 10% increase in all tariffs in the world, global growth would be cut by 1%, US growth by 2%, and global trade by 2.5%. The losses could amount to 3 to 4 points of GDP (in the United States, China and Europe) if the current situation evolve to a “classical” trade war (a sharp rise in all tariffs similar to the previous trade wars) with a significant impact on financial markets and confidence. The impact would be similar to the damages during the Great Recession of 2008-2009, and it could be much worse for the very open economies. One can even fear until the disappearance of the WTO, a potential collateral damage of an intense trade war.

Some people think that the world of free trade may be in the process of switching, considering the new context of protectionism as a major disruption. This is not totally surprising. Will Trump continue his current strategy, or will he do like G. Bush in 2002, who had retreated in the face of Europe’s retaliation and the sanctions announced by the WTO? The time will tell us very quickly...To sum up, the article attached is aimed at giving our views on numerous questions which have surfaced in 2018, of which :

  • Where does the US deficit come from?
  • How to define a trade war?
  • How to define the impacts on growth?
  • Where do the different disputes come from?
  • Is China so unfair and WTO useless?
  • Is D. Trump’s strategy potentially successful?
  • What would be the collateral damages of a US-China tough dispute?
  • Can Europe be a winner … or the next target for D. Trump?
  • Is intra-EU trade protecting Europe?
  • Will D. Trump continue on the path of protectionism?
  • What are the lessons from economic theory, the lessons from history, and the lessons from empirical studies?
  • Trade war: only losers, no winners?
  • Can WTO survive a trade war?
  • What are the most probable scenarios?

 

To find out more, download the full paper
 

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