The head of the World Trade Organization warned on Thursday that a tit-for-tat trade war would have disastrous consequences for global economic growth.
“If we had tit-for-tat retaliation, whether it was 25% or 60%, if we went back to 1930s levels, we would see double-digit losses in global GDP. That would be catastrophic. Everybody would pay a price ,” WTO Director-General Ngozi Okonjo-Iweala said at the World Economic Forum in Davos.
Nigeria's WTO chief made the remarks during a debate over U.S. President Donald Trump's threats to impose tariffs on countries he believes unfairly gain trade advantages from the United States.
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at the same time, Ian Bremmer, The founder of Eurasia Group and political risk expert said in the comments zero daily On Thursday, many of Trump's “tariff threats will be proven to be bluffs.”
But he believes the combined effect of the Trump administration's policies could have a devastating impact on the U.S. economy.
“China will be the main target Trump imposes 50-60% tariffs “We have imposed tariffs on certain goods and doubled the average tariff on all Chinese imports by the end of the year in an effort to force Beijing to make a deal,” he said.
“But while China's economy is in disarray and President Xi Jinping prefers to avoid a trade war with the United States, he is unlikely to make concessions generous enough to satisfy Trump and the hawks in his cabinet.”
“Beijing will retaliate”
together with Other U.S. moves China doesn’t likeHe predicted that “tariffs will lead to retaliation from Beijing, leading to a breakdown in Sino-U.S. relations and higher prices for imported goods and inputs, thereby harming the interests of U.S. consumers and businesses.”
Bremer, who is currently at the World Economic Forum in Davos, said he expects some countries such as Mexico to give in to Trump's demands and offer enough concessions to avoid 25% tariffs, while others such as Canada may “feel The need to crack down on “their own measures” increases the risk of a broader trade war that could plunge the United States and the world into recession.
As a political risk expert, Bremer believes that the “worst case scenario” may be avoided, but he said that “Trump's initial tariffs will still disrupt supply chains, distort trade flows, and increase costs for American businesses and consumers – Lower-income Americans have been hit the hardest.
“Here’s the problem: Tariffs not only fail to ‘make our citizens rich’ — Trump’s stated goal — but they also don’t meaningfully reduce the overall U.S. trade deficit or bring back manufacturing jobs,” he said.
Economic impact of immigration crackdown
Other policies, such as a crackdown on undocumented immigrants – which “could reduce by as many as 1 million this year and 5 million during his term” – will also have an economic impact.
He said laying off so many workers would “reduce the American workforce, push up wages, business costs and consumer prices, reduce the economy's productive capacity and widen the deficit.”
As a result, the United States will face slower growth and higher inflation. But he believes the pro-growth policies investors and business leaders are counting on — deregulation and tax cuts — “will not create enough momentum to offset the losses.”
The financial sector, Silicon Valley, the cryptocurrency industry, and fossil fuel producers will benefit from looser regulations.
“But the macro impact will be limited: The U.S. economy is already one of the least regulated in the developed world, and Trump has already taken most of the low-hanging fruit in his first term.”
Tax cuts may be limited
Bremer said Republicans would make permanent Trump's 2017 cuts to businesses and the wealthy, but that would cost more than $4.5 trillion over 10 years. He doubted Trump could do more because the fiscal deficit already accounts for 6.5% of GDP and the party only has a “slim majority” in the House of Representatives.
He also doubts Elon Musk can find enough savings to lower taxes, especially if Trump increases defense spending. “Meaningful spending cuts will be difficult to achieve.”
That means promises to lower the corporate income tax to 15 percent and eliminate tips, Social Security taxes and overtime pay are unlikely to materialize. Because “the deficit and debt as a share of gross domestic product will grow faster over the next four years.”
As inflationary pressures from tariffs and deportations increase and deficits widen – the Fed will be forced to keep interest rates higher for longer, making the dollar stronger but mortgage payments more expensive and economic growth slowing.
Many business leaders and investors are dismissive of the risks, but he said the starting conditions are much different than when Trump began his first term in 2017 – with government debt soaring and deficits higher since the pandemic. High, inflation remains above target and interest rates rise.
“The downside risks are much greater.”
Additionally, “constant speculation about what the president might do next” will put pressure on trade, investment and growth.
Uncertainty and policy fluctuations — coupled with the “nepotism and pay-per-view” that may flourish under Trump — “risks eroding the foundations of the United States as the world's number one economy,” he said.
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