VCI explores impact of US tariffs on global trade

Frankfurt, Germany – The German Chemicals Industry Association (VCI) has issued a briefing on the potential effects of US trade tariffs on neighbouring economies and worldwide.

In a 4 Feb review, the chemicals industry body said the imposition of tariffs and threat of further such measures were 'increasing uncertainty among market players.'

Taking into consideration that only a moderate growth is expected in the global economy, Frankfurt-based VCI said the tariffs could 'poison the willingness to invest.'

“Trade wars and protectionism are slowing down world trade and thus also endangering global economic growth,” the association added.

The US has imposed 25% tariffs on imports from neighbouring Mexico and Canada, and 10% on energy imports from Canada, which have for now been delayed for a month.

An additional 10% will be due on all imports from China, noted VCI, adding that “further tariff steps and also an expansion to other countries, such as the EU, could follow.”

Citing the results of a model applied by the German Institute for Economic Research (ifo), VCI said the new tariffs on imports from Canada, Mexico and China could in turn impact 'US exports' by as much as 22%.

Canada and Mexico would also be “massively affected,” with 'countermeasures' potentially causing declines in total exports of 28% and 35% respectively.

The ifo model expects that the impact on China would be much smaller, as the country can redirect its trade more easily than the US's direct neighbours.

For Germany, the model has “slightly positive effects” but expects the chances of export growth to be “very low, also in view of the threats to impose tariffs on products from the EU.”

The Kiel Institute for the World Economy (IfW) used its trade model to examine the effects of tariffs on overall economic growth.

The Kiel study forecasts “serious economic disruptions in North America” as a result of the tariffs.

Within the first year, it predicted, the US protectionist measures could lead to a sharp decline in the real GDP of Canada and Mexico.

The US would also suffer from higher costs for imported energy and production inputs, but the economic impact would be less severe.

Globally, the German institute expects the consequences would be limited.

“In the short term, trade diversion effects are moderate, meaning that other regions, such as the EU, would feel almost no impact,” it concluded.