Higher Tariffs to Hit Poorest Countries Hard, Unlikely to Protect Jobs, WTO Says

By Paul Hannon

Increased protectionism will hit the world's poorest countries hardest, and is a costly and counterproductive way of protecting jobs in rich countries, the World Trade Organization said Monday as it called for a period of "reglobalization" to reduce global inequality.

Barriers to trade have been creeping higher for the better part of a decade, including the broad-based tariffs introduced by Donald Trump in 2018 and the U.K.'s decision to leave the European Union two years earlier, with recent actions including measures targeting Chinese-made electric vehicles. Seeking a second term in November presidential elections, Trump is advocating for a ramp-up in tariffs to hit all imports to the U.S.

Ahead of its annual public forum, the WTO made the argument for free trade in a new report, citing its transformative role in lowering poverty and income inequality. Between 1995 and 2022, the WTO estimated that the share of poor and middle-income economies in global trade grew to 38% from 21%, while the share of trade between those economies in world trade almost quadrupled, increasing to 19% in 2021 from 5% in 1995.

During that period, income per person in poor and middle-income countries tripled, the WTO said.

"These are difficult times for globalization," said Ralph Ossa, the WTO's chief economist. "What is really important to do is change the narrative."

Support in rich countries for higher tariffs goes back to the "China shock" of the early 2000s, when a boom in imports of cheap, Chinese-made goods helped keep inflation low but at the cost of some manufacturing jobs in the U.S. and elsewhere.

Higher tariffs appeared to some to be a way of protecting the manufacturing jobs that remained. More recently, barriers to trade have been presented as a way of ensuring economic resilience, particularly after the disruptions to supply chains caused by the Covid-19 pandemic.

Growing geopolitical tensions have also been cited as a justification for protectionist measures, as a way of reducing reliance on hostile or potentially hostile countries for key goods.

Some economists see a simpler explanation for the greater political appeal of protectionist measures.

"Individuals who see their relative economic and social status in decline inevitably want to place the blame somewhere," economists at UBS wrote in a recent report on the U.S. election. "The simple solution is to find a scapegoat, but in the world of scapegoat economics, some unfortunately see foreigners as one of the easiest groups to blame."

Whatever their justification, the WTO said increased barriers to trade will hurt poor countries most, since they rely on foreign investment and the trade it generates for access to better technology.

"Continued fragmentation of the global economy under geopolitical pressures would disproportionately impact low-income economies, which are furthest from the technological frontier and rely on access to foreign markets for sustained catch-up growth," the WTO said.

While it is widely accepted that globalization helped reduce the income gap between rich and poorer countries, some economists assert that it widened the gap between rich and poor within countries.

But looking at the data on trade and inequality within countries around the world over recent decades, the WTO found that there isn't a strong, uniform link.

"There is no correlation," said Ossa. "Trade does generate winners and losers, but it's hard to make generalizable statements."

The WTO acknowledged that some people in rich countries lost their jobs or felt left behind during the period of globalization that it wishes to revive. But it argued that barriers to trade are the wrong way to try to fix those problems, and can often force some workers to lose their jobs so that others might keep theirs.

"Restricting trade is typically an expensive way to protect jobs for specific groups within society, and can raise production costs, while inviting costly retaliation from disgruntled trading partners," said Ngozi Okonjo-Iweala, the WTO's director general.

Instead of raising barriers, the WTO said governments should help workers acquire new skills that are in high demand, and make it easier for them to move to locations where new jobs are being created.

"If you want to help, the more promising approach is to help workers move towards opportunity," Ossa said.

Write to Paul Hannon at paul.hannon@wsj.com

(END) Dow Jones Newswires

September 09, 2024 10:44 ET (14:44 GMT)

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