EUROPEAN FISCAL RULES AS A LIABILITY IN THE TRANSATLANTIC TRADE CONFLICT: LESSONS FROM NiGEM SIMULATIONS

Abstract

Under the Trump administration, a transatlantic trade conflict has been escalating step by step. First, it was about tariffs on steel and aluminium, then about retaliation for the French digital tax, which is suspended until the end of the year. Most recently, the US administration threatened the European Union with tariffs on cars and car parts because of Canadian seafood being subject to lower import duties. As simulations with NiGEM show, a further escalation of the transatlantic trade conflict has the potential to slow down economic growth significantly in the countries involved. This is a considerable risk given the fact that the countries have to cope with the enormous negative effects of the pandemic shock. Furthermore, the damage caused by the trade conflict depends on the extent to which the affected countries use fiscal policy to stabilise their economies.

THE WORLD ECONOMY: Global outlook overview

“…The issue of de-globalisation has been raised (Kara and Macchiarellli, 2020) and how US tariff policy will develop may depend critically on the result of the US Presidential election. The issue of increased trade barriers remains an important one for both world trade growth and regional growth (Dullien et al (2020), Liadze (2018b), Hantzsche and Liadze (2018) and Verikios et al (2020) as well as for the regions within the US economy and overall economic performance.…”