The upshot of our economic analysis is that the tariff measures announced thus far are unlikely to have
a material impact on our global macro outlook, even if the affected countries would take proportional
counter-measures in response. The range of estimates we come up with falls well within the margin of
error for global growth forecasts. This does not rule out that the impact might be felt more acutely in
the directly and indirectly affected sectors and in countries that are heavily specialised in the
affected sectors. And while we clearly see a risk of a regime shift, there are a number of reasons why we
are not overly worried about the macro impact at this stage.
First, thus far only a limited
range of products have been subjected to protectionist measures. The products covered in the report
drafted by the US Department of Commerce under Section 232 account of 2% of US imports (or 0.2% of US
GDP). Globally, these products have a slightly more prominent role and trade also accounts for a larger
part of economic activity than in the US. We would estimate the share to be roughly 0.9% of global GDP.
So, even if you assume that demand drops materially due to the tariffs, it is difficult to get an impact
of more than 0.3pp of GDP. As steel and aluminium are intermediate products, there will likely be
knock-on effects along the production chain. In the case of Germany, a heavy user of both base materials
in its industry, we estimate these indirect effects to be roughly half the size of the direct impact.
Hence, unless the tariffs are broadened very materially, the current trade tensions are unlikely to
derail the global macro outlook.
Second, both sectors are subject to long-standing trade
tensions due to overcapacity globally, especially in the steel sector. Tariffs have been applied in these
sectors on and off for decades. History offers two potential parallels on how the rest of the world might
react. In the 1980s, Japan agreed to so-called Voluntary Export Restraints (VERs) on its car industry in
response to President Reagan’s protectionist push. In the early 2000s, by contrast, when President Bush
imposed steel tariffs, the EU responded with highly targeted counter-measures. President Bush lifted the
steel tariffs after 21 months, having bought the sector time to adjust, before the European levies were
implemented. Looking at the list drawn up by the European Commission over the last few weeks, it seems
that this is how Europe would likely respond at the current juncture as well. In our view, a
WTO-compatible response does not necessarily imply escalation. Against the historical backdrop, the
measures announced thus far and the counter-measures considered seem less of a regime shift than the
rhetoric would suggest.
Third, away from the US (and possibly Brexit), further trade
liberalisation is still continuing. Since President Trump came to power, a number of important new trade
agreements were negotiated, signed or ratified. These agreements include the Comprehensive and
Progressive Agreement for Trans-Pacific Partnership (CPTPP), a Free Trade Agreement between the EU and
Mexico and CETA, the Comprehensive and Economic Trade Agreement between the EU and Canada, among others.
At the same time, China is pushing ahead with its One Belt One Road initiative, which over time should
also open up to new trade channels. True, the big gains in trade liberalisation triggered by the collapse
of the Soviet Union, China’s accession to the WTO and a sharp drop in transport and communication costs
likely lie behind us now. But this does not mean that there is no further trade integration in the
All in all, the trade policy measures proposed thus far are unlikely to change our
global macro outlook. Several factors could change this benign assessment. For starters, if fears of
escalating trade tensions impact financial markets noticeably, material movements in equity markets
and/or exchange rates could create fresh forecast risks. According to Hans Redeker, who heads our FX
strategy research, US trade protectionism reinforces the current US dollar weakness – a development that
is not helping to rebalance the transatlantic economy. Instead, a weaker USD could reinforce concerns
about overheating in the US. But it could also bring into question whether the ECB will reach its
inflation objective and seems to have triggered another vocal response from ECB President Draghi this
past week. In addition, we have not seen all of the trade policy measures that are in the pipeline in the
US. Many trade policy experts view future measures relating to intellectual property rights under Section
301, the amendment of the Committee on Foreign Investment in the US (CFIUS) and, of course, the NAFTA
renegotiations as potentially more powerful.
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