More at https://www.bertelsmann-stiftung.de/en/ ... us-itself/US economic isolation hurts the global economy – and the US itself
"America first!" was the slogan US President Donald Trump used to announce a turnaround in American foreign and trade policy. How would looming economic isolation impact the American economy and the rest of the world? New simulation results show: protectionism in international trade is a loss-making venture.
Since Donald Trump was elected, there has been a growing risk of US trade policy increasingly relying on protectionist measures. The aim of this isolationist policy is to secure jobs and income at home. In reality, however, higher import duties and other import obstacles would mean that weakening of international trade triggered by the US would incur a loss of income worldwide, especially in the US.
In the worst-case scenario for the United States, annual US economic output would drop by 2.3 percent in the long term. In today's terms, this would result in a loss of gross domestic product (GDP) to the tune of USD 415 billion. This is the key finding of a recent study by the ifo Institute on our behalf.
Revamp of the North American Free Trade Agreement would be harmful to the US
Even the reintroduction of tariffs and non-tariff trade barriers, for example technical requirements, documentation obligations, etc. in the North American free trade zone, which includes the United States, Canada and Mexico, would damage the American economy. In the long term, real per capita income in the US would fall by around 0.2 per cent, or USD 125. In Canada alone, the annual loss of income would be just over 1.5 per cent, or around USD 730 per inhabitant. Related losses in annual GDP would be about USD 26 billion in Canada and USD 40 billion in the US.
Many other countries could, however, benefit from a decline in trade between the US, Canada and Mexico. Germany's annual exports to the US would increase by around 3.2 per cent or USD 4.4 billion according to calculations. At the same time, long-term per capita income in Germany would grow by almost 0.03 per cent or USD 12. This would correspond to GDP growth of USD 1 billion.
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There used to be a saying over here, "When the US sneezes the rest of the world catches a cold," meaning, a small economic downturn in the US leads to a greater economic downturn elsewhere. Incredibly, many countries weathered the GFC much better than the US. It's also telling that when Trump pulled the US from the TPP, the natural response wasn't, "Well, this won't work, oh well," but, "Okay, we'll just do it without you." The US is becoming increasingly less relevant. This is precisely the wrong time for American economic isolationism.