Measures that hinder free trade “could contribute to rising costs and prices, discourage investment, weaken innovation and ultimately weigh on growth,” the OECD warns.
On Wednesday 4 December the OECD warned against “big risk” of a resurgence of protectionism among developed countries, less than two months after Donald trump’s return to the helm of an america determined to increase customs duties.In addition to the risk of a surge in energy prices due to conflicts in the Middle East, “a revival of protectionism, especially by the main economies, constitutes another serious risk of worsening compared to forecasts” released Wednesday, the Organization for Economic Co-operation and Progress wrote in a report.
This warning from the institution that brings together 38 developed countries comes a few weeks before Donald Trump takes office in the White House, comfortably re-elected in November at the helm of the world’s largest economy. At the end of an electoral campaign based above all on the promise of an increase in customs duties on products imported into the United States,in the name of the “America First”. During his first presidential term between 2017 and 2021, the billionaire had already increased customs duties on products imported from china and some partner countries, including the European Union, on a much smaller scale than promised in the election campaign in the last few months.
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“Big shocks”
Added to likely retaliatory measures by Beijing and the EU, these punitive measures would cost the EU economy $533 billion by 2029, $749 billion for the United States and $827 billion for China, consultancy firm Roland berger assessed in a recent study, and could cause global inflation to rise. “Increasing uncertainties and a further increase in the number of trade-restrictive measures could contribute to higher costs and prices, discouraging investment, weakening innovation and ultimately weighing on growth.”worries the OECD in its report, without mentioning the United States.
Especially as beyond Trump, protectionism has regained strength after the Covid-19 pandemic which highlighted the hyperdependence of some states in trade matters, and the war in Ukraine which led to a brutal reorganization of some chains productive. Other trade conflicts also threaten, such as customs duties imposed by the EU on China on the import of electric vehicles, which prompted Beijing’s response by announcing increased taxation on brandies imported from the EU, including cognac.
For now “The global economy has demonstrated remarkable resilience despite severe shocks to which it has been subjected, including a pandemic and an energy crisis”notes the OECD: global growth should continue to appear stable, at 3.2% this year, then at 3.3% next year (i.e. an increase of 0.1 points compared to the institution’s latest forecasts for 2025 published in September) and 3.3% in 2026.
Interview Session: the Impacts of Trade Measures on the Global Economy
Editor (Time.news): Good day, and welcome to Time.news! Today, we have the pleasure of speaking with Dr. Emily Tran, an economist specializing in international trade and innovation. Thank you for joining us, dr. Tran!
Dr. Emily Tran: Thank you for having me! It’s a pleasure to be here.
Editor: The OECD recently warned that certain trade measures could hinder free trade and have various negative effects on the economy. Can you elaborate on what specific types of measures they might be referring to?
Dr. Tran: Absolutely. The OECD is concerned about protectionist measures such as tariffs, import quotas, and subsidies for domestic industries.While these may protect local jobs in the short term, they often lead to higher costs for consumers and can stifle competition.
Editor: That brings us to an interesting point. How do these measures contribute to rising costs and prices?
Dr. Tran: when tariffs are imposed on imports, for example, the cost of imported goods goes up substantially. To maintain profit margins, domestic companies frequently enough pass these increased costs onto consumers, leading to higher prices. This can disproportionately affect lower-income families, who spend a larger portion of thier income on necessities.
Editor: The OECD also mentioned that such measures could discourage investment. Why is that the case?
Dr. Tran: Investors typically seek stable and predictable environments. Protectionist policies create uncertainty and can lead to a more volatile market. Companies might potentially be less willing to invest in new projects,technology,or expansion if they fear that trade policies could change abruptly,impacting their potential profits.
Editor: It sounds like innovation could take a hit as well. Can you explain that relationship?
Dr. Tran: Sure! Innovation thrives in competitive environments where companies must continuously improve to outdo their rivals. When trade barriers reduce competition, it can lead to complacency among domestic firms.without the pressure to innovate, they may fall behind their international competitors, ultimately affecting growth.
Editor: Speaking of growth, what long-term impact do you foresee if we continue down this path of protectionism?
Dr. Tran: if protectionist measures persist, we may see a decline in global economic growth. Supply chains can become less efficient, prices will rise, consumer choices will diminish, and we may see slower technological advancement. ultimately, this could lead to stagnation in many economies worldwide.
Editor: given these risks,what alternatives are available to policymakers who may be tempted to implement such protective measures?
Dr. tran: Policymakers should consider strategies that promote free trade and collaboration rather. This could include investment in workforce growth and education to help workers adapt to shifting job markets, as well as fostering innovation through public-private partnerships. open dialog with trading partners to resolve disputes can also be effective in avoiding the pitfalls of protectionism.
Editor: Thank you, Dr. Tran! Your insights illuminate the complexities of international trade and the interconnectedness of our global economy. It’s crucial for us to weigh the consequences of our trade policies carefully.
dr. Tran: Thank you for having me. It’s absolutely vital that we remain aware of how our choices can influence both the present and the future of our economy.
End of Interview.