Baku, Azerbaijan, July 9
By Leman Zeynalova – Trend:
Clearly, the scale of any damage caused by a global trade war would depend on how high tariffs (or equivalent protectionist policies) get, the UK-based consulting company Capital Economics said in its analysis obtained by Trend/
“As an illustration, we will consider across-the-board tariffs of around 25 percent implemented by all governments. This is the rate which the US has already imposed on steel imports from most countries, and on $34 billion worth of imports from China. While this is high by recent standards, it is in line with the average US tariff in the late nineteenth century. And many other countries have in the past had tariffs of at least that level,” said the company.
The Capital Economics analysts believe that in practice it is highly unlikely that all economies would impose such high tariffs.
“Small, open economies would gain little from doing so: they would be able to influence the terms of trade and would have no deterrence effect given that they import fairly little. Also, the trade war is currently being waged primarily by the US. There is less risk of trade barriers between, say, China and the EU. But a simple scenario of 25 percent tariffs across the board is intended to provide a rough guide to the potential costs,” said the company.
Capital Economics believes that the most significant channel by which tariff barriers are likely to affect the global economy is by prompting firms to relocate production to take account of the new tax environment.
“In a world in which there are few barriers to trade, businesses can locate their operations in the countries where output is produced at lowest cost. But in a world of high tariff barriers, they would relocate some production in order to keep these tariff costs to a minimum. This should reduce the productive potential of the world economy,” said the report.
“The extent of any relocation would vary between industries. For many commodities there will be little scope to shift production from one location to another. Copper would continue to be mined in Chile and oil in Saudi Arabia even if these commodities were subject to a very high tariffs when they were exported. Accordingly, there would be no significant reduction in efficiency in these cases.”
President Donald Trump has said the United States may ultimately impose tariffs on more than a half-trillion dollars’ worth of Chinese goods.
Trump confirmed that the United States would begin collecting tariffs on $34 billion in Chinese goods and warned that subsequent rounds could see tariffs on more than $500 billion of goods, or roughly the total amount that the United States imported from China last year.
China immediately accused the US of starting “the largest trade war in economic history to date” and responded by imposing 25 percent tariffs on $34 billion worth of US goods, including soybeans, automobiles, and lobsters.
This marks the start of the trade war between the two countries.
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