Given the growth in global trade in recent years, it might be tempting to argue that trade barriers for geopolitical reasons have had an insignificant economic impact. However, while the international trade system may appear resilient, tariffs and other restrictive measures entail significant costs.
BRUSSELS. The emergence of an open multilateral trade system that separated trade from geopolitics played a crucial role in the post-World War II economy. But today, as geopolitical considerations increasingly influence trade policies, a new paradigm is becoming visible.
This trend began with the customs tariffs imposed by former U.S. President Donald Trump on Chinese imports in 2018, which were maintained by President Joe Biden’s administration, leading China to impose its own tariffs on U.S. imports. Then, in 2022, following Russian President Vladimir Putin’s invasion of Ukraine, the G7 countries and the European Union imposed extensive economic sanctions on Russia, effectively banning imports and exports to and from the country.
Instead of causing a decrease in global trade, these trade barriers and restrictions merely made it slower, resulting in what has been termed ‘slowbalization.’ Notably, despite the war in Ukraine and disruptions to supply chains in recent years, trade as a percentage of GDP reached a historic high in 2022, highlighting the resilience of the international trade system. In fact, increases in container shipping prices since that year can be attributed to an unexpected surge in the volume of products shipped globally.
While it may be tempting to argue that geopolitically motivated measures have had a minimal economic effect, the perceived resilience in global trade can be misleading. Although recent trade barriers led to higher trade volumes, many of them carry significant costs.
At first glance, the notion that a tariff can boost trade may seem paradoxical. However, nearly all tariffs and trade restrictions imposed by the U.S. since 2018 have specifically targeted China while leaving imports from other countries untouched. As a result, there was a sharp decline in Chinese imports, and imports from countries like Vietnam increased. Many consumer products are shipped to the U.S. after being assembled in Vietnam and other Southeast Asian countries.
But these imports still rely on intermediate inputs from China. Consequently, trade volumes have grown because, while U.S. imports of consumer goods from Asia have remained steady, China’s exports of intermediate inputs to its Asian neighbors have increased. Similarly, although Mexico has surpassed China as the leading exporter of products to the United States, its own imports from China have risen by nearly 40% since 2018.
The electric vehicle (EV) market illustrates how discriminatory practices can foster trade. Tariffs on Chinese EVs are approaching 30%, and U.S. regulations disqualify EVs containing components produced or assembled in “entities of concern” from receiving tax credits, effectively preventing Chinese manufacturers from entering the U.S. market. In contrast, European EVs face a significantly lower tariff of 2.5% and qualify for a $7,500 leasing subsidy under the Inflation Reduction Act. Consequently, Chinese EV exports have shifted to Europe, while European automakers have thrived in the United States.
Meanwhile, the EU is undergoing a similar process. After Western sanctions on Russia, European exports destined for Turkey and Central Asian countries like Kazakhstan and Kyrgyzstan have skyrocketed. At the same time, trade volumes between these countries and Russia have surged.
Such evasion methods of sanctions or discriminatory tariffs result in higher production and logistics costs, as products must now be transported through intermediary countries before being sent to the U.S. Consequently, discriminatory sanctions and tariffs can both boost trade and reduce prosperity.
These detrimental effects underscore the importance of the “most favored nation” principle that has long been the cornerstone of the global trade system. Concerted efforts to liberalize trade, first through the General Agreement on Tariffs and Trade, and subsequently with the World Trade Organization, have increased trade volumes and overall prosperity through this non-discriminatory approach. In contrast, current trade barriers and discriminatory tariffs for geopolitical reasons explicitly target specific countries seen as hostile or potential threats.
Fuente: Daniel Gros es director del Instituto de Estudios de Políticas Europeas de la Universidad Bocconi.
Traducido del inglés por David Meléndez Tormen
Copyright: Project Syndicate, 2024