Consequences of trade tariffs can be far-reaching — and detrimental to all

A report launched at the World Economic Forum in Davos provides global policymakers with an evidence-based overview of the far-reaching economic and social consequences of trade tariffs

Container Ship Dock CraneA REPORT commissioned by the International Chamber of Commerce (ICC), as part of its trade agenda — an initiative in partnership with Qatar Chamber of Commerce and Industry — outlines 10 possible effects of a return to broad-based tariff increases.

While recognising that trade liberalisation has resulted in some negative consequences, the report — prepared by the Economist Intelligence Unit — stresses that tariffs do not provide an answer. The consequences, illustrated by way of two case studies, range from an increase in poverty to deteriorating health outcomes.

“Almost all tariffs benefit a narrow group at the expense of a broad one,” the report says, “have unanticipated effects beyond their original focus areas, and take more time to repeal than to implement.”

ICC secretary general John WH Denton said the report highlights the “counterproductive nature of addressing social and economic problems through tariff increases” as well as the pressing need for movement on reforming trade governance. “To enable this, business needs to prepare the ground to allow policymakers to move without risk,” he said. “The ICC is helping to achieve that by channelling the voice of business and others into a more actionable debate on multilateral trade reform.”

The director general of the World Trade Organization, Roberto Azevedo, said the private sector generated many of the new ideas on trade reforms that governments then take forward. “It is important that the private sector understands this role — it is more important than ever today.”

The report provides three recommendations for policymakers to consider before levying tariffs, along with alternative tools.

They are:

  1. To prevent further tariff increases, policymakers must first be honest about the negative effects that trade liberalisation has had on certain groups, not least to shed light on the inadequacy of tariff hikes as a solution.
  2. Policymakers should insist on a deliberative process and data-driven societal impact assessments for all major proposed tariff increases. Such assessments would shift the burden of proof onto those advocating tariffs and provide insight into their wider effects.
  3. Policymakers should address their grievances with more effective tools. To tackle China’s unfair treatment of foreign investment, policymakers should use multilateral forums and leverage China’s desire to retain a rules-based trading system.
  4. Policymakers can promote more flexible trade agreements that do not pursue free trade at all costs, and instead allow countries some latitude to pursue other societal goals, such as environmental protections.

The report also notes that governments can increase their low expenditure on training programmes for groups that lose out from free trade.

Sheikh Khalifa Bin Jassim Bin Mohammed Al Thani, chairman of ICC Qatar and a member of the ICC executive board, said: “The EIU report reflects Qatar Chamber’s shared view with ICC that for governments and policymakers to make informed decisions, evidence-based analysis is essential.”

The report examines 10 areas where tariffs may have unintended negative effects — from disproportionately impacting the impoverished and increasing inequality to exacerbating political polarisation and hurting sustainable economic growth.

Entitled Aftershock: The Pervasive Effects Of Tariff Hikes, the report was launched in Davos during the World Economic Forum’s Annual Meeting 2019 as part of discussions taking place in the Global Dialogue on Trade, a global consultation to support multilateral trade reform.

Supported by the World Trade Organization (WTO), the Organisation For Economic Co-operation And Development (OECD) and regional development banks, the digitally enabled platform convenes open dialogue among multilateral institutions, think-tanks and businesses from around the world with the aim of developing recommendations for meaningful reform and modernisation of the rules-based trading system.

Download Aftershock: The pervasive effects of tariff hikes from the ICC website.