Statue of Liberty is seen shrouded in fog in New York City, the United States, Dec. 14, 2015. (Xinhua/Wang Lei)
BERLIN, Sept. 12 (Xinhua) -- Protectionist measures favored by U.S. President Donald Trump would come at a heavy cost to the U.S. and global economy, a study published on Tuesday by the Bertelsmann Institute finds.
In the worst-case scenario, "America First" policies could shave 2.3 percent, or 415 billion dollars, off U.S. annual Gross Domestic Product (GDP) in the long term.
The Guetersloh-based think-tank commissioned the respected Ifo Institute for Economic Research to examine the implications of tariffs and non-tariff barriers floated by Trump on international trade.
Even in the most benign scenario considered, in which Washington only re-negotiated agreements underlying the North American Free Trade Area (NAFTA), annual real per capita income would still fall by 0.2 percent, or 125 dollars. Canada would be most heavily hit by such a move, witnessing losses in real per capita income of 1.5 percent, or 730 dollars for each inhabitant. In aggregate terms, Canadian GDP would be 26 billion dollars lower, compared to reduction of 40 billion dollars in the U.S.
By contrast, other countries would benefit from a fracturing of trade between the NAFTA members Canada, Mexico and the U.S. German annual exports to the U.S. would rise by 3.2 percent while the country's GDP increased by one billion dollars.
If Washington were to instead adopt a protectionist approach towards all of its trading partners, the economic fallout would be greater still. Raising all tariff barriers and non-tariff barriers for imports from the rest of the world by 20 percent would reduce U.S. exports to most countries by 40 to 50 percent due to losses in competitiveness.
This development would be mirrored by a long-term reduction in per capita income of 1.4 percent or 780 dollars and a reduction in GDP of 250 billion dollars. Germany would see loses in annual per capita income of 0.7 percent or 275 dollars and a loss of GDP worth 22 billion dollars.
The Bertelsmann Institute's modelling for the effects of equivalent retaliatory measures (20 percent rise in tariff- and non-tariff barriers) in response to such protectionism suggest that U.S. GDP would be 415 billion dollars smaller as a result. Real per capita income would be 2.3 percent (1300 dollars) lower in the U.S., compared to a 3.9 loss (1800 dollars) in Canada and a reduction of 0.4 percent (160 dollars) in Germany.
Bertelsmann director Aart de Geus described the study findings as a clear argument against protectionism in all of its forms.
"Economic isolationism results in losses for all trading partners involved. What we need is a fair trade policy which enables the free exchange of goods and services and contributes globally to the welfare of producers and consumers" de Geus said in a statement published on the institute's website.
Notably, the Bertelsmann study may have still been too optimistic in its assumptions. The Ifo authors did not consider dynamic effect on productivity growth and only modelled an increase in tariff- and non-tariff barriers of 20 percent, whereas President Trump has raised the specter of imposing tolls as high as 35 percent.
When asked by Xinhua what role Germany could play in persuading the United States to remain committed to free trade, Bertelsmann Institute Economics expert Dr. Thiess Petersen acknowledged that the Trump administration may not be very receptive to proposals from a country which it has repeatedly accused of running excessive trade surpluses.
"Perhaps it would help if the German government adopted policies to reduce the size of its trade surplus, for example by boosting domestic investment." Petersen said.
While he pointed out that the volume of German exports was too small to cause meaningful imbalances in the global economy, such "symbolic" measures could be enough to persuade U.S. officials to abandon their "America First" doctrine.
Petersen further voiced hope that U.S. business representatives would take positive note of German appeals in favor of free trade and would in turn exert pressure on the Trump administration.