ISLAMABAD: Stating that everyone loses in a trade war, and exporters will face higher tariffs regardless of whether they are in developed or developing countries, the United Nations Conference on Trade and Development (UNCTAD) has issued a list of 123 countries including Pakistan which may face potential tariff increases.

The tariffs are calculated under the assumption that all countries will engage in a trade war and set tariffs to their optimal mercantilist levels. As far as Pakistan is concerned, the current applied tariffs are close to five per cent, while a full trade war scenario can increase the tariff to almost 45pc.

A report of UNCTAD says the standard trade theory indicates that, by unilaterally introducing tariffs, a large country not only limits its imports from the rest of the world, but also reduces the price of its imports relative to its exports, thereby, benefiting from an improvement in its terms of trade.

These unilateral tariffs can be calculated by estimating the leverage each country has on international markets, depending on whether its trade policies are able to influence international prices. This would also include nullifying any bilateral concessions and preferential conditions for specific categories of countries, the report says.

UNCTAD Secretary-General, Dr Mukhisa Kituyi, while quoting an old African proverb, said, “When elephants fight, it is the grass that suffers.” The same is true for full-blown trade wars: when major economies clash, developing countries will be among the hardest hit, he said.

“Since the General Agreement on Tariffs and Trade (GATT) took effect in 1947, the average value of tariffs in force around the world has declined by 85pc. That is no coincidence; rather, it is the result of multilateral cooperation, and eight rounds of global trade negotiations, first under the GATT, and then under its successor, the World Trade Organisation,” he continued.

“Tariff reductions, together with technological advances, drove the extraordinary expansion of global trade that we have witnessed just in our lifetimes. In 1960, trade as a share of world GDP stood at 24pc; today it is nearly 60 per cent,” Kituyi added.

Yet trade expansion has not benefited everyone equally. And in some cases, it has resulted in environmental degradation and economic displacement, with many people now feeling left behind. These are serious and legitimate issues that must be addressed. But unilateralism is not the way to do it.

Unfortunately, current trade actions augur a situation in which everyone will lose. In a trade war, companies across a wide range of sectors will lose profits, workers their jobs, governments revenue, and consumers the product choices available. And, no matter where they are, firms, governments, and households will incur higher costs.

Even worse, a global trade war might jeopardise the multilateral trading system itself. It would no doubt result in tariff increases greater than anything we have seen in recent history.

UNCTAD research shows that average tariffs could rise from negligible levels to as high as 30pc for US exporters and 35pc and 40pc for EU and Chinese exporters, respectively. So, even if the “elephants” have sufficient economic weight to withstand a trade war, they would not benefit from one. And, of course, developing countries that played no role in starting the conflict would be even less able to afford it.

On average, tariffs applied on developing countries’ exports could rise from 3-37pc. But whereas average tariffs affecting countries like Nigeria and Zambia probably would not go above 10pc, while those against Mexico could reach as high as 60pc. Likewise, countries like Costa Rica, Ethiopia, Sri Lanka, Bangladesh, and Turkey could face average tariffs of 40 to 50 per cent.

Kituyi said, “The harm caused by a full-on trade war would be felt well beyond the realm of international commerce. Today’s trade climate reflects a disturbing global trend towards nationalist unilateralism. The countries that helped reshape our world for the better through trade are now abandoning international cooperation, and that shift may have serious implications for other areas such as global efforts to combat climate change and ensure peace and prosperity for all. The easiest way to win a trade war is to avoid it altogether.”

Meanwhile, a latest joint report of UNCTAD and the World Bank on “the unseen impact of non-tariff measures” suggests that governments and the international community need to make a decisive effort today to improve the design and implementation of non-tariff measures (NTMs).

Published in Dawn, July 8th, 2018