UNCTAD raises concerns on effects of trade tensions

UNCTAD Headquarters

As trade tensions between the world’s top two economies escalate, the multilateral trading system is being jolted, leaving the world economy on a slippery slope towards a full-scale trade war, the United Nations Conference on Trade and Development (UNCTAD) has stated.

Stating that no one wins a trade war, UNCTAD noted that while many of the proposed policies do not violate the letter of the World Trade Organization (WTO), they are very much against its spirit, as without the support of the two largest economies, the rules-based system of international trade can quickly lose its authority, leaving the world economy on a slippery slope towards a full-scale trade war.

Alessandro Nicita, an economist at UNCTAD said higher tariffs would greatly affect the global economy by disrupting supply chains and increasing the prices of many consumer goods, adding that the size of international markets would shrink, to the disadvantage of less efficient producers, often small and medium-sized enterprises in developing countries.

Specifically, Nicita stated that countries whose export bundle is concentrated in product where no country has substantial leverage may likely be spared from the worst effects of a trade war, while countries whose export bundle is concentrated in products and destination markets which can exercise substantial leverage would be most affected.

“Overall, it is very likely that poor countries will lose relatively more from a trade war than richer countries. A consideration is that the imbalances and inequities which are a characteristic of the global economy cannot be corrected by unilateral actions but requires a concerted effort. Ultimately, one of the most worrying concerns is that a trade war will have negative spillovers in other areas where multilateral cooperation is most needed (e.g. managing financial integration, addressing corporate taxation, environmental sustainability)”, he added.

He noted that a trade war would not hit all countries and industries equally.

Earlier, an economist and Senior Lecturer, Lagos Business School, Dr. Adedoyin Salami, during a breakfast meeting, had warned that tariff impositions, trade disputes and trade wars by the United States government could tip the global economy back into slower growth mode, saying that if this happens, the demand for oil could be imperilled.

He also raised alarms over the United States’ plan to spend over $1 trillion over the next three years on its infrastructure stock, stating that as the American government borrows to bridge their infrastructure gap, interest rates would further rise and could stifle capital flows to Nigeria.

“While the main economies may have sufficient economic weight to withstand significant retaliation, it does not mean that they will benefit from a trade war. We calculate that the U.S. exports would face an average tariff of about 30 percent, the E.U. would face about 35 percent and China would face almost 40 percent. That is a very significant increase from current relatively negligible tariffs.

“The effects of a trade war would be felt far beyond those countries who are directly involved. And things may not look pretty for many developing countries. Although the effects of a trade war would be overall substantial, we do see a lot of variance in our calculations.”

Some countries would be much more affected than others. The reason for such different effects is due to differences in export composition and destinations”, Nicita added.

In this article:
Adedoyin SalamiUNCTADWTO


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