Monday, April 11, 2016

Anti-trade presidential campaign rhetoric raises the risk of increased protectionism

April 11th, 2016, NEW YORK, NY- Fervent anti-free trade rhetoric dominates the U.S. Presidential campaign on both the Republican and Democratic side, raising the risk of increased protectionism, according to  Kathy Bostjancic, Head of US Macro Investor Service, Oxford Economics.  "Using our global economic model, we estimate that imposing high trade tariffs on China and Mexico and likely retaliatory tariffs would lower both the level of real GDP by 1.6% and employment by 1.4 million by 2020, than we otherwise forecast.  Sharp increases in tariffs would push the inflation rate up to 3.5% by 2020," says Bostjancic in a research brief released today.
Bostjancic also highlights the following in the report:

The benefits of free trade are widely dispersed, while the costs are highly concentrated. Further, recent empirical evidence shows that the negative impact on affected workers is greater than theory suggested.  These negative externalities of free trade fuel the populist backlash.

However, the benefits of free trade still outweigh the costs; thus, increased trade protectionism would stifle U.S. economic growth.

Moreover, imposing such tariffs would violate World Trade Organization rules and puts the US in breach of trade agreements we have entered into with other countries.

Most importantly, the politicians – while tapping into the electorate’s increasingly negative view of free trade - are focusing on the past and making global trade the scapegoat. Instead leaders should focus on practical solutions to help those workers who have been adversely affected by foreign competition as well as technological advances.

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