JEJU ISLAND -- An intensifying global trade war would increase tariffs by up to 40 percent and reduce trade by two-thirds around the globe, resulting in the whole world becoming poorer, a Nobel Laureate economist said Wednesday at a forum on peace and security.
Paul Krugman, a distinguished professor of the City University of New York, said South Korea’s export-driven economy is vulnerable to a US-led trade war, but its strong economic ties with other Asian countries in the region could mitigate the impact.
Paul Krugman speaks at the 13th Jeju Forum in South Korea on Wednesday. (Yonhap)
“Big economies are on average less vulnerable. To some extent, regional trading deals may push some of the smaller economies,” he said during a special lecture at the 13th Jeju Forum held on the southern island of Jeju on Wednesday, citing South Korea as an example. “So one can imagine some kind of Asian agreement that would limit the damage.”
Globally, the trade war would eventually lead to a collapse of the global economic order and open trade in the next 10 years, which will make the world “significantly” poorer by 2 or 3 percentage points than today.
“There is a real risk, a very serious risk of trade war, something that would substantially reduce the amount of global trade,” he said. “We might see the world trade falling by around two-thirds, which would bring it back to roughly where it was in the 1950s.”
The previous administrations’ failure to do “enough” to help “losers” in the globalized trade system caused anger and dismay, contributing to the breakdown of the global trade system, he added.
At the heart of the ongoing trade war is US President Donald Trump who has pledged to reduce trade deficits with countries like China. Many of Trump’s supporters are based in the industrial Midwest where jobs were lost after factories moved abroad to cut down on production costs.
The Trump administration is expected to release details of plans to restrict Chinese investment in American businesses to sharply limit China’s access to cutting-edge US technology, which is bound to provoke a forceful retaliation from Beijing.
It comes after Trump announced on June 15 that his administration will impose tariffs on $50 billion worth of Chinese goods and threats of tariffs on up to $400 billion more in the future. He also imposed tariffs on aluminum and steel imported from Canada, Mexico and Europe.
While Trump continues to tout his trade policy of levying tariffs on imports as bringing jobs and factories back to the US, there are signs of negative repercussions on American exporters, such as soybean farmers and steel-using businesses, as the US trade partners decided to retaliate.
On Monday, Harley-Davidson, a Milwaukee-based motorcycle maker, announced its decision to move some production overseas, citing retaliatory tariffs it faces in an escalating trade dispute between the US and the European Union.
A possible trade war, unlike a war, is not a situation with victories and defeats, Krugman pointed out.
“Trade war is more like an arms race, in which everybody wastes a lot of resources and ends up in the same place, except just poorer. Everybody ends up being worse off,” he said.
Krugman was on Jeju Island for the 13th Jeju Forum, titled “Re-engineering Peace for Asia, to give a lecture on a global trade war and its implications on the regional security.
The forum, which runs from Tuesday to Thursday, brought together hundreds of government officials, diplomats, scholars and experts from around the world to delve into the fast-changing diplomatic landscape following the June 12 US-North Korea summit.