Daily Management Review

ECB Says Trade Deficits May Rise, Not Reduce, By Protectionism


03/22/2017




Just days after finance chiefs of the world's top 20 economies dropped their pledge for open trade, the European Central Bank reiterated the importance of open trade policy and said in a study that a country's trade deficit could get increased rather than decreased by any form of protectionist trade policies.
 
It may be recalled that a series of protectionist measures, such as new import duties, have been proposed by Donald Trump's U.S. administration who is seeking to reduce a large trade deficit of the country’s economy.
 
The economies of Germany and China both sell more goods to the United States than they buy from it and both the counties are key partners, and the White House also wants to revisit some of its trade relationships which includes those with such key partners.
 
Indeed, the United States has already raised fears that global trade will take a hit because it has refused to reaffirm its pledge for open and free trade at the G20 meeting last weekend, has pulled out of the Trans-Pacific trade deal and asked for a review of the North American Free Trade Agreement.
 
But despite these strong measures by the U.S., the opposite recipe is needed, believes the authors of the ECB paper -- published in its regular Economic Bulletin.
 
Firms are helped in keeping their cutting edge over international rivals and lifting the country's exports by improved competitiveness through the process of liberalizing global trade and importing cheaper intermediate goods, they said.
 
"Adopting policies that facilitate innovation and reduce protectionist barriers may help to improve an economy's competitiveness," the ECB paper said. "Multilateral initiatives aimed at trade and financial liberalization may also reduce an economy's external imbalances."
 
"Participating in global value chains may give an economy a temporary competitive edge that results –- in order to smooth consumption over time –- in a rise in its current account balance," the ECB added.
 
Additionally, the U.S. administration has claimed that countries running big current account surpluses may be using unfair trade practices  and the ECB study also appeared to dismiss that claim by the U.S.
 
Instead, as countries expect others to liberalize trade to improve their own efficiency and restore competitiveness, they will view their competitive edge as temporary, behaving with caution, the study argued.
 
"As a consequence, in order to smooth consumption over time, part of the income gain in the domestic economy will be saved, which improves the current account balance," the ECB added.
 
The current account balance is likely to deteriorate as consumption and imports rise to match what income levels if the advantage is perceived as permanent, it added.
 
(Source:www.reuters.com) 






Science & Technology

Scientists Discover Largest Ever Under Water Volcanic Eruption Near New Zealand

Bitcoin craze increased load on the power grid to the maximum

PC And Server Performance Slows Down Due To Security Patches For Chip Flaws, Says Microsoft

Cybersecurity Firm Claims Cryptocurrency Monero Might Be Getting Funneled To North Korea University

The Way We Travel Will Be Changed by The Colorless, Odorless Gas - Hydrogen

EU's Big Change In Data Protection Rules Makes Businesses To Get Ready For It

Artificial Intelligence Helps NASA Find An 8th Planet In Orbit Of A Distant Star

Australian Research Success Could Mean Shatterproof Cell Phones Could Soon Be A Realityv

Top ten hi-tech events of the year

Tesla Considering Designing And Developing AI Chips On Its Own To Support Its Auto-Pilot Project

World Politics

World & Politics

Take and go away: new approach to refugees in Europe

Both The Korean Countries Will Come Together In Olympic Talks

Parties of Germany agreed on the migrants problem

Munich Re: Natural disasters caused record damage in 2017

High-Level Talks To Be Held Between North And South Korea In Over Two Years

Sexually Abusing Children Interests An Estimated 20,000 British Men, Shows Police Monitoring Of Chat Sites

2018 Could See An Increase In Terror Attacks Where Both ISIS As Al-Qaeda Continue To Present Threats

What will happen to European populism in 2018?