The economic implications of rising protectionism: a euro area and a global perspective

ECB Office Brussels

On 14 May 2019, the Brussels Office of the European Central Bank (ECB) organised a conference on the economic implications of trade protectionism. The presenters were two ECB officials, Lucia Quaglietti (External Developments Division) and Vanessa Gunnella (Euro Area External Sector Division), who started from the following key ideas:

  1. Trade integration has slowed down over the last decade and protectionism has increased.
  2. US tariffs against China target mainly the electronics and machinery sectors.
  3. The share of world and euro area trade affected so far remains small.
  4. The impact on economic activity in the country imposing tariffs depends mainly on:
    • whether imported goods can be substituted by domestic production, and
    • whether trading partners retaliate. Third countries might temporarily benefit from rising protectionism.
  5. However, an increase in uncertainty, coupled with financial stress, would amplify the adverse impact of rising protectionism on economic activity over the longer term.

Their conclusions were as follows:

  1. Taken in isolation, the repercussions of tariffs implemented in 2018 pose only a modest adverse risk to the global and euro area outlooks.
  2. If trade tensions were to escalate further, however, the impact would be larger.
  3. Trade liberalisation within the framework of multilateral cooperation has been a key factor driving global economic prosperity.
  4. While it is important to cushion the negative impact which trade liberalisation has on certain groups in the society, raising trade barriers is not the solution.

The ECB officials analysed with abundance of data the repercussions of the trade tensions between the United States and China. Their econometric models predict that the United States may be harmed more than China and that the negative impact on the euro area would be limited.

EESC member Javier Doz Orrit intervened to point out that, according to his personal opinion, the decisions of the US Government, acting systematically against the WTO rules and seeking to impose unilaterally its own stances – e.g. Iran after the breakdown of the Nuclear Agreement, Helms-Burton Act for Cuba, etc. – can seriously aggravate the political and economic situation.