JAKARTA (TheInsiderStories) – Mario Draghi, the president of the European Central Bank (ECB) and Christine Lagarde, the managing director of the International Monetary Fund (IMF) have warned that there are troubling developments arising from increased trade barriers and tariffs.
Two of the world’s most influential economic leaders said that international trade conflicts, particularly between the United States (US) and China, as well as other industrialized countries and Europe, would affect global growth negatively.
This came during the 8th ECB conference focused on central, eastern and south-eastern European (CESEE) countries in Frankfurt on Wednesday (06/12).
Meantime, soaring trade tensions between the world’s largest economies reached its highest level as negotiations between the US and China stalled on the back of an increasing desire to place more tariffs upon imports.
Draghi said that the business model in Central and Eastern European countries is vulnerable to shocks as car exports in these countries account for nearly 30 percent of total manufactured exports, making them more defenseless against US President Donald Trump’s threats to increase tariffs on European cars and spare parts.
“Global trade has faced headwinds in recent years as trade-restrictive measures have outpaced liberalizing measures. The central and eastern European business model has become vulnerable to shocks to international trade and financial conditions,” Draghi said in a welcome address at the conference.
He said the European Union (EU) economies have been disproportionately affected by this for two reasons. First, trade in EU economies is especially responsive to cyclical developments. Since these countries have consistently been more open to trade over the past two decades.
Second, EU economies have increasingly specialized in certain industries, which may have made them more exposed to industry-specific shocks. In some countries, for instance, vehicle exports represent nearly 30 percent of total manufactured exports, making them more vulnerable to the threat of increasing car tariffs, he adds.
Last year, Trump threatened to impose 25 percent tariffs on all EU car imports, however, the decision was postponed for six months.
“The effect of tariffs could be amplified, as a large share of goods crosses borders multiple times during the production process,” he said.
“The main long-term challenge is moving towards a more balanced growth and financing model, which is more reliant on domestic innovation and on higher investment spending than it has been so far,” Draghi added.
On his part, Lagarde warned that these troubling developments will create an unfavorable climate for all.
“Global growth has been subdued for more than six years and the largest economies in the world are putting up, or threatening to put up new trade barriers. And this might be the beginning of something else, which might affect us all in a more broad way,” Lagarde said.
“These troubling developments will create headwinds for all, but certainly for the CESEE growth model, a model that has relied on openness and integration,” she added.
She urges the EU, through cooperation, can fix and modernize the global trade system, avoiding tit-for-tat tariffs and instead of finding ways to unlock the full potential of e-commerce and trade in services.
It also requires a renewed focus on the distortionary effects of state subsidies, improving the enforcement of intellectual property rights, and ensuring effective competition, she said.
These policies, she adds, should go hand-in-hand with building a global trading system that is more effective in delivering for every citizen, especially those hurt by the disruptions that come with rapid technological change.
Finally, the two officials emphasized that the threat of US tariffs over European imports indicates that some European countries such as the Czech Republic, Slovakia, Poland, and Romania would undergo potential risk.
Written by Lexy Nantu, Email: email@example.com