Can tariffs change the world?
The import tariffs that the United States is imposing are shaking markets and the global economy. Could tariffs be a game changer?
In recent decades every economy in the world has grown thanks to globalisation. But inequalities have increased in the most developed countries, creating a sense of injustice in some.
Grab your headphones and find out where the United States’ true hegemonic power resides.
“The United States’ dominance – at a time when its share of trade is steadily diminishing, but its financial power and standing in international institutions remain intact – collides [...] with the fact that other powers, other economies, are growing in size. Foremost among them is China, whose growth in economic size is not reflected in the governance of our multilateral system.”
Do tariffs only affect trade or is the globalised international economy at stake?
Javier Pérez, Director of the International Economics and Euro Area Department, explains how the world and its economies have changed in recent decades, especially since the end of the Cold War. With no wars on a world scale, ever-lower transportation costs, unprecedented technological development and countries specialising in the production of goods or services, globalisation has transformed all economies and interconnected them in many ways.
Broadly speaking, the most advanced countries have specialised in services, while emerging economies have specialised in the production of goods, ranging from commodities to industrial goods. All countries have experienced economic growth, but not all in the same proportion or in the same realms: a sense of injustice has permeated the industrial sectors of some western economies.
The United States has seen significant growth in the provision of services to the rest of the world, but its industrial production has declined. In any event, the power of the country with the world’s highest GDP resides not in its trade capacity but in its financial strengths. The United States issues dollars, the international reserve currency, and US government debt is present in the portfolios of every central bank and financial institution in the world. It plays a central role in all global markets, including securities, energy and goods markets, and – alongside other western powers – holds a pre-eminent position in the major international organisations.
Although the global economic balance is shifting (forty years ago some 60% of international GDP was produced by advanced economies, whereas now emerging market economies account for that 60%), western economies, Europe among them, continue to dominate the world’s political, regulatory and economic power.
But recent geopolitical changes, from COVID-19 to the war in Ukraine, have pushed concepts such as “comparative advantage” to the background, while others such as “strategic autonomy” and “economic security” are beginning to shape the global economy.
In the face of this uncertainty, Europe must continue to champion a cooperative solution, especially among its Member States. As a group of small economies that together form a commercial giant, collaboration is in our DNA. Moreover, we are a reliable international partner, committed to establishing rules that respect all parties and are sustainable. Indeed, rules are indispensable for international economic order.
