Tit-for-tat trade barriers in response to the Trump administration』s tariffs on steel and aluminium threaten to undermine a strengthening global economy, the Organisation for Economic Co-operation and Development said on Tuesday.
The Paris-based body said the world economy was finally growing at its historical, normal rate but added that its prediction of a rosy outlook in the next few years was based on nations enjoying the fruits of higher investment and trade without any new tariffs or other barriers to commerce.
The implication of its forecast was that a rise in tariffs between the US and its trading partners would snuff out the positive effects on US growth of the Trump tax cuts.
In an interim update of its economic outlook, the OECD said: 「Trade protectionism remains a key risk that would negatively affect confidence, investment and jobs」.
Following the US decision to impose 25 per cent steel import tariffs and 10 per cent on aluminium with few exemptions, Álvaro Pereira, the OECD』s acting chief economist, told the Financial Times: 「We think it is very important to avoid an escalation in trade protectionism and we strongly believe a global dialogue on excess [steel] capacity is crucial.」
Asked what the impact on the outlook of such an escalation would be, he added: 「I don』t want to debate different scenarios, but we know from the past what happens and the lesson is that these escalations are damaging to the world economy」.
The OECD is taking this message in its World Economic Outlook, that trade tensions threaten to undermine progress, to the G20 meeting of finance ministers in Buenos Aires, Argentina. Speaking privately, one participant said he thought trade tensions threatened to overshadow the meeting next week.
There is no sign yet that a slide into a trade war is undermining the global outlook. The OECD revised up its forecast for 2018 global growth from 3.7 per cent as recently as November to 3.9 per cent with improvements expected in almost every country, except for Russia. Even larger improvements in the growth outlook were pencilled in for 2019 with the global economy also expanding 3.9 per cent, a level similar to pre-crisis normal rates.
The UK was singled out with the lowest projected performance among the leading advanced and emerging economies across 2018 and 2019, with only 1.3 per cent growth forecast this year and 1.1 per cent next year.
「High inflation continues to damp real household income growth and consumer spending, and business investment is slowing, amidst continued uncertainty about the future relationship between the UK and the EU,」 the OECD said.
Mr Pereira said the best aspect of the global recovery was a surprise 「broad-based」 rise in business investment over recent quarters that would act as a foundation for a more sustained upswing.
With the Trump administration fiscal stimulus in the US and the new German coalition government』s proposal to increase public spending, there were 「good implications for the eurozone」, he added.
More action to loosen fiscal policy would need faster interest rate rises, particularly in the US, where some signs have emerged of demand fuelling wage rises, the OECD said. This is another sign of a welcome return to normality. But Mr Pereira cautioned that US and German fiscal loosening was an experiment because it represented a「substantial stimulus late in the cycle」.