World trade: WTO: hoped -for benefits by tariffs unlikely

The world trade organization (WTO) has dealt with tariffs and the positive effects expected by some governments for the domestic economy and comes to the conclusion: it hardly works. This emerges from a WTO blog contribution by chief economist Ralph Ossa. Ossa does not call the United States, who want to heat domestic production with juicy tariffs.

“Basically, tariffs are very simple: they increase the domestic price for imported goods,” writes Ossa. This has consequences for prices, wages, exchange rates and trade currents.

Customs could promote domestic industrial branches that compete with the imported goods. However, this reduces workers and capital from the exporting sector. The expansion of domestic industrial branches also drives wages upwards. This increases the costs for exporting companies, which are then less competitive in international markets.

OSSA: Hardly any influence on trade weight weights

Ossa also describes a currency effect: tariffs reduced the domestic demand for the product documented with customs. The lesser need for foreign currency and lead to an upgrading of the domestic currency.

Customs could change the trade in individual sectors or bilaterally, but according to empirical studies, they would have little influence on the aggregated trade weight weights, writes Ossa.

His conclusion: “Customs are not just an instrument for increasing income or protecting domestic industry – they are a political lever with far -reaching and often unintentional consequences. Their short -term attractiveness can disguise the long -term costs in terms of inflation, competitiveness and international cooperation.”