OECD: Global Economy at Risk from Protectionist Measures

Written by Sandy Williams

Global economic expansion may have reached its peak as trade tensions pressure markets, says a new report by the Organization for Economic Cooperation and Development. OECD is projecting global GDP growth will settle at 3.7 percent in 2018 in its Interim Economic Outlook

“Amidst rising trade tensions and heightened trade policy uncertainty, global trade growth has slowed. Global trade volume growth eased to around 3 percent in the first half of 2018, from 5 percent in 2017. Recently introduced restrictive trade policy measures have already resulted in marked changes in trade flows and prices in targeted sectors. Policy announcements have also adversely affected business sentiment and investment plans, reflecting uncertainty about the possible disruption to supply chains and the risk that restrictions may intensify. A further rise in trade tensions would have significant adverse effects on global investment, jobs and living standards.”

OECD notes that items affected by U.S. tariffs have jumped in price this year. Consumer prices for washing machines leapt 20 percent after washer imports to the U.S were slapped with tariffs. Tariffs on imports of steel and aluminum caused domestic steel pricing to jump 18.6 percent between January and August. Exports of U.S. pork and vehicles declined as a result of retaliatory tariffs.

OECD finds that economic policies face several challenges amidst considerable uncertainty:

  • “A gradual normalization of monetary policy is needed, but to a varying degree across economies. Fiscal policy choices should be focused on measures that improve the prospects for sustainable and more inclusive medium-term growth. Any margins from stronger growth should be used to help build fiscal buffers.
  • “Monetary and fiscal policy space needs to be restored gradually to provide scope for support in a future downturn.
  • “Policy choices in many emerging-market economies should focus on restoring confidence and stability, and avoid harm to medium-term growth prospects.
  • “Enhanced deployment of macro-prudential policies would strengthen financial resilience.
  • “Greater structural reform ambition is required to enhance medium-term living standards and improve opportunities for all.”

Accelerated trade tensions, including additional tariffs, will hurt production and incomes in the countries imposing trade restrictive measures, said OECD. 

“The resulting decline in trade intensity would also harm medium-term growth prospects by impeding future productivity gains and lowering competition. In contrast, steps to lower tariffs in a coordinated manner could bring widespread gains.”

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