Protectionism is on the rise in the US and Europe.
The 44th G7 Summit 2018 just concluded on 9th June in La Malbaie, Canada. For the uninitiated, the Group of Seven (G7) is a group of seven countries with the seven largest advanced economies in the world, accounting for nearly half of the world’s GDP.
The G7 Summit 2018 was dubbed as ‘Trump vs. the World’. It is no secret that the current US President, Donald Trump, is a genuine believer of trade tariffs. Trump threatened to stop doing trade with countries “who are being unfair” to the US and using them as a ‘piggy bank’. Canadian PM, Justin Trudeau, is singled out by Trump for ‘stabbing us in the back’ for have a 270% tariff on US dairy products. He vowed to reduce the overall trade deficit with other countries and shall impose tariffs on imports in the name of ‘fair trade’. It is fair to say that the relationship between the allies have soured after the summit.
The abovementioned leave economists around the world shaking their heads. Economists argue that there is no straightforward relationship between a country’s trade balance and its labour-market dynamic or economic well-being.
For example, if a country imposes taxes on steel imports, there would be an increase in costs of the domestic companies who export airplanes and motorcars.