Using conservative estimates to assess the risks to the world economy from
rising economic nationalism of the kind promoted by Donald Trump, the
Washington-based organisation warned of “severe consequences” for world
trade and economic growth, with the harshest impact reserved for
developing nations.
Under the scenario outlined in its latest global economic prospects report published on Tuesday, the bank found a
broad-based increase in the use of import tariffs worldwide – to the
maximum levels permitted by the World Trade Organisation – would trigger
a decline in global trade amounting to 9%.
Business Today: sign up for a morning shot of financial news
Read more
While that would be similar to the drop experienced during the financial
crisis of 2008-09, it warned the impact could be even greater if
countries went further than the WTO rules.
Advertisement
Franziska Ohnsorge, the lead author of the bank’s report, said: “The threat of
trade protectionism is a real risk. Anything that puts sand in the
wheels of global trade is a risk to global growth.”
The intervention by the bank, which was established alongside the
International Monetary Fund after the second world war to reduce poverty
in poor countries and to foster greater international collaboration and
economic development, comes amid an increasingly bitter trade dispute
between the US and its traditional allies.
The Trump administration last week imposed border tariffs on steel and aluminium
imports from the European Union, Canada and Mexico, triggering angry
responses and countermeasures, which could unravel decades of political
consensus over the benefits of free trade.
Concerns also remain over an escalation of tensions between the US and China amid similar
threats of protectionism from the White House and a promise of
retaliation by Beijing.
The bank said the risks from a full-blown trade war would be worse for developing nations, because their fortunes
are often linked to the strength of major nations’ economies. Ohnsorge
said a 1% decline in growth in the US, China or the euro area could
reduce growth in emerging economies over a year or two by up to 1.1%.
Without giving precise details for how much a full-scale economic conflict
would lower world GDP, she said: “Trade has been an important source of
euro area growth, Japanese growth and a lot of emerging market economies
are very linked to that growth.”
