Freitag, 19.04.2019 19:09 Uhr

Italy, PRC and the re-emergence of economic protectionism

Verantwortlicher Autor: Carlo Marino Rome, 18.03.2019, 09:07 Uhr
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Rome [ENA] The People’s Republic of China, where the state is the real “invisible hand” of economy is likely to sign a memorandum of understanding with Italy during the visit of Chinese President Xi Jinping to Italy from March 21 to March 26. PRC is already taken into account as the number one world power in terms of PPA (parity of purchasing power), and, since Xi Jinping came to power, it has launched a direct challenge

to the US dominance of the high-tech sector. China’s international orientation most prominently features the project it launched in 2013, the New Silk Road, called One Belt One Road for a Chinese audience, and branded as the Belt and Road Initiative for the rest of the world (a name chosen by Beijing to sound more reassuring). It is a pivotal moment because the world’s largest economies, particularly the EU, China, the US, Mexico and Canada, are all estimated to suffer economically from the re-emergence of economic protectionism, and an extraordinary increase in trade tariffs. The European Union would experience a 1% contraction in GDP, a 0.3% lower rate of employment, and a 1.1% decrease in imports by 2030,

compared to a ‘no new tariffs’ baseline scenario. All countries seem to get the worst of it from big tariff hikes, both in term of economic growth and employment. Even if the tariff hikes expected are more extensive in the US than in other parts of the world, it is mainly People’s Republic of China and the EU that suffer. This is due to the large trade surpluses, particularly in manufacturing, that these trading blocs have with the US. Such analysis is based on a global macro-economic model run by Cambridge Econometrics and Eurofound’s European Jobs Monitor. It is detailed in the Trade scenario: Employment implications in Europe of a large increase in global tariffs report from the Future of Manufacturing in Europe (FOME)

project FOME is an EU project proposed by the European Parliament and delegated to Eurofound by the European Commission. Protectionism is on the rise. This scenario estimates the potential impact of a significant increase in tariffs in the world’s major trading blocs. As predicted by economic theory, tariffs do impact negatively on both GDP and employment. The most negative impact is in the trade blocs that have a trade surplus. The EU-wide decline in GDP translates to a 0.3% fall in employment in the EU28 by 2030 compared to the baseline.

The projections detailed in the report are modelled on a basis that there would be significant tariff hikes between NAFTA countries; that there would be a 25 percentage-point increase in US tariffs on imports from China across all manufactured and agricultural goods; that there would be reciprocal tariffs implemented by China, and that a similar tariffs regime comes into effect between the US and the EU. There has been an increase in economic protectionism since 2008, but this has significantly gained pace under the current US administration which has overseen a substantial increase in tariffs with both China and the EU.

The FOME report shows that all three global actors will lose out in the scenario, with the US experiencing a 0.3% decline in GDP by 2030, China a 0.8% decline, and the EU a 1% decline. The implications for employment are similarly negative in almost every country in the EU,although on a smaller scale to GDP. Generally, the impact on employment is roughly half that of the impact on GDP, but there are exceptions, notably in the Netherlands where the sectors most affected by trade are not the most labour intensive in the economy. Partly for this reason, it is Germany that would be most negatively impacted in terms of employment.

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