Protectionism should not be neglected

I return to an article written nearly a year ago about the danger of global protectionist policies, the spurts of which may be the trigger of global economic turmoil.
The protectionist policy of the Trump administration, which is recently manifested by the intention to increase the import taxes on steel and aluminium, only provokes an escalation of tension in trade relations and confirms the words of an American friend, I quote: “I do not know what Trump is doing but surely he annoys many people.”

In response to these policies, and following social media scandals, the EU is considering to apply a 3% tax on the income of American digital corporations (GAFA).
This war will involve another major Chinese power, China, strongly affected by the intention of imposing additional $ 50 billion tax on imports and limiting Chinese investment in US companies, especially in the technology industry.

If US decisions are to be taken, the effects will be borne in particular by major European non-EU producing countries such as Russia, Ukraine, Turkey, which will invade with these products the neighbouring markets and, obviously, Eastern Europe. Thus, there will be additional pressure on the Romanian producers, Sidex and ALRO Slatina.
Neither capital markets have remained indifferent to such news. Dow Jones Industrial Average’s reaction: dropped rapidly by 730 points, which confirms once again that they do not like commercial wars and signals that anticipate a rise in benchmark interest rates.

It is well known that protectionist policies cannot save long-term bad industries and jobs, so he recent position of EU President Donald Tusk, quoting: “Promote trade, not war” was welcomed.

We face today the start of an asymmetric trade war: on the one hand, steel and aluminium taxes with an impact on heavy industry, namely developing countries’ economies and the taxation of digital companies and Chinese investments, with influences on the first two economies of the world.

If we join the fragility of capital markets inflated through such news, with the very likely rise in interest rates, we are dealing with a cocktail of great explosive potential, which we should avoid.

Adrian Crivii

Adrian Crivii is the founder of Darian DRS SA and the coordinating partner of the management teams across all the divisions of Darian Group. He has also been a member of ANEVAR since 1993 and an honorary member of the Royal Institution of Chartered Surveyors (RICS). Adrian Crivii is a REV valuer (Recognised European Valuer) and graduated the Machinery and Equipment Valuation Course (ME 201-206) of the American Society of Appraisers.

By |2019-02-01T14:08:11+00:00March 23rd, 2018|Blog|0 Comments