– In the worst case, we will have a trade war. We may have a downward spiral reminiscent of what happened in the 30s. It can become a self-harming behavior that is difficult not to get involved in.
Simon Johnson is one of this year’s three recipients of the Swedish Riksbank’s prize in economic science in memory of Alfred Nobel. He is an economics professor at MIT and former chief economist at the International Monetary Fund. According to him, trade tariffs are harmful to everyone in the long run.
– I understand that you may want to defend the status quo, but what is happening is that the economy is becoming less dynamic. Protected behind trade barriers, not enough new jobs are created.
“Increased costs for low-income earners”
The US president-elect, Donald Trump, has spoken of imposing general import tariffs on all goods from other countries of 10-20 percent, and specifically against China of 60 percent. Which means that those who import must pay that tax, and thus are forced to make the goods more expensive for consumers.
– Goods manufactured in countries like China are often bought by low-income people. Those consumers will have increased costs. This means that their purchasing power drops by 10-15 percent. It won’t be popular.
For the rest of the world, tariffs are expected to lead to lower growth. The Chamber of Commerce has calculated that Swedish exports to the United States would decrease by 16 percent. The US economy is also expected to decline when things become more expensive and world trade declines.
“Better to invest in science”
But doesn’t that save jobs? Isn’t it precisely low-income earners in factories where jobs are otherwise about to move to China who gain from protective tariffs that favor domestic production? Simon Johnson believes that it is a possible short-term profit, but that in the future it will punish itself by “protected workshop” making the own companies less competitive.
– It is better to invest in science and technological development so that you can move up the value chain, create new things that can be commercialized and produced in the USA. Move on, instead of fighting about the current situation.