Trade Publication Article

Consequences of increasing protectionism

2020

Overview

In some parts of the world, protectionist tendencies are on the rise once more. This is particularly true of the United States, which has adopted a more restrictive trade policy stance in recent times. By imposing additional tariffs on China and other trading partners, the US Administration hopes to win trade concessions as well as to strengthen its own economy and boost domestic employment. However, following the escalation of the US- China trade dispute, there has been a decrease not only in US imports from China but also in US exports to China. In addition, there have been no indications to date that the United States has either substituted its imports from China with thirdcountry imports or increased domestic production of these goods on a large scale. Chinese exporters do not appear to have made any substantial price concessions, either. All of this suggests that neither the US economy nor US consumers have benefited from the realignment of the country's trade policy thus far. Furthermore, the empirical evidence indicates that no \"lucky bystanders\" have profited as yet from the dispute between the United States and China. While trade diversion effects appear to have been largely non- existent, trade policy disputes are likely to have exacerbated uncertainty worldwide. This, in turn, has probably put additional strain on investment and thus global economic activity. Should an all-out trade war break out between the United States and the European Union, the consequences for the global economy could be far graver still. Counteracting protectionist efforts would require the rules-based trading system, with the World Trade Organization (WTO) at its core, to be strengthened. This involves amending rules with a view to improving the protection of intellectual property and addressing the way in which it deals with state-owned enterprises. However, the success of such an ambitious push for reform depends on the constructive participation of all WTO members. Trade agreements such as those concluded on an ever more frequent basis by the European Union in recent times are only an imperfect substitute for a functioning multilateral order.

• Publisher: Deutsche Bundesbank
• Subject: Ambition / Bystanders / Competition / Compromises / Consumers / Disputes / Economic activity / Employment / Escalation / Exports / Global economy / Globalization / Imports / Intellectual property / International relations-US / International trade / Investments / Liberalization / Participation / Prices / Property / Protectionism / Public enterprise / Realignment / Tariffs / Trade agreements / Trade deficit / Trade disputes / Trade policy / Trading / Trump, Donald J / Uncertainty / US exports