• Fears of a trade war resurfaced after Donald Trump decided last March to drag age-old protectionism out of the past, imposing tariffs on US imports, and triggering China’s retaliation. A solution may be on its way and a closer look points to mere trade skirmishes.
  • Alternative scenarios include a Trade Feud and a Trade War. Both would be (very) disruptive for markets, global trade, business insolvencies, and growth in the US, the EU and China.
  • Other forms of protectionism (Financial, Regulatory, Data, Currency, Environmental, Sanitary, Security, and Intellectual Property) could be even more disruptive.

Since the beginning of the year, President Trump has demonstrated a certain chutzpah for protectionism announcements and measures (see Figure 1).

Truth be told, many countries have been exempted since such announcements - from the steel and aluminum tariffs e.g. -, and the second wave of announcements, targeted at China, could end up being negotiated directly between the US and China.

Much ado about nothing?

In the meantime, global trade is actually doing well. Global trade volumes rose by an estimated +4.8% in 2017 while protectionist measures continued to pile up (+489 new measures in 2017 compared to 2016 (see Figure 2).

The acceleration of global growth was strong enough to more than offset the dampening effects of these new protectionist measures and push many countries to open up again to benefit from the synchronized acceleration in growth.

Interestingly, the US was already the most active country in developing new protectionist measures (+90 measures in 2017 from +84 in 2016). Among large economies, it is the only one with an increased number of new measures.

The US has always been a free trade promoter, initiating both the WTO (World Trade Organization) in 1995, and the GATT in 1948 (General Agreement on Tariffs and Trade, WTO’s predecessor) to avoid the devastating impact of protectionist initiatives such as the US Smoot-Hawley tariffs.

Yet, trade liberalization never was a walk in the park: WTO disputes, the rise of non-tariff measures, and periods of protectionist rhetoric are common in the context of elections.

 Previous American Presidents did not hesitate to have recourse to protectionist measures for electoral purposes. The upcoming mid-term elections in November 2018 certainly explain the hostile rhetoric.

Figure 1 Protectionism timeline