“These are not the best times for global trade.” This is the statement of the Director General of the World Trade Organization (WTO), Dr. Ngozi Okonjo-Iweala.
“We see increasing protectionism, some undermining of WTO rules, and some of that leads to fragmentation,” she told the BBC.
“Global trade is really part of the lifeblood of building resilience in countries – and also of supporting growth, so we’re concerned about that.”
In recent weeks and months, these fragmentations came to the fore when the European Union (EU) imposed temporary tariffs of up to 37.4 percent on imports of Chinese electric vehicles (EVs). This comes after the United States (U.S.) imposed 100 percent tariffs on Chinese electric vehicles in May.
Both Brussels and Washington accuse the Chinese government of unfairly subsidizing its electric vehicle sector, allowing manufacturers to export cars at unfairly low prices and threatening jobs in the West.
Fair competition is OK
President Biden also raised import taxes on a number of other Chinese products that he said make up the “industry of the future.” These include EV batteries and the minerals that contain the cells needed to make solar panels and computer chips.
Meanwhile, the U.S. is pouring billions of dollars of government money into green technology, through its Inflation Reduction Act, which aims to reduce reliance on Chinese imports.
But those factors have their roots in events that continue to fundamentally reshape the global economy, International Monetary Fund (IMF) First Deputy Managing Director Gita Gopinath explained in a recent speech.
“What we’ve seen in the last few years, I would say, especially when it comes to global trade relations, we haven’t seen since the end of the Cold War,” she added.
The world will pay dearly for this”
She warns that “the world will pay dearly” if it continues down this path. A WTO study estimated the cost to be as high as 5 percent of the entire world economy, while the IMF suggests it could be closer to 7 percent, or $7.4 trillion in lost output over the long term.
Regarding the increased use of “safeguard tariffs,” she adds:
“We hope that what we saw in the 1930s will not happen again. We had retaliatory tariffs, and everything went downhill from there and – everyone lost”.
“So I hope we never enter such an era again”.
