Economic activity in the United States could fall more than two percent within a year if Washington launched a trade war on a wide front, European Central Bank researchers suggested Wednesday.
The forecast comes as officials like ECB President Mario Draghi and World Trade Organization chief Roberto Azevedo warn of protectionism’s rising threat to the world economy under Donald Trump’s “America First” policies.
To test the US-against-all global trade war scenario, the Frankfurt-based experts fed a set of assumptions into economic models produced by the ECB and the International Monetary Fund (IMF).
They simulated Washington hitting all imports with 10-percent tariffs and America’s trade partners responding in kind — a far more drastic scenario than Trump has so far toyed with.
As well as the tariffs’ direct effects on trade, the economists tried to capture the effect on public and financial market confidence by simulating a jump in government borrowing costs and a slump in global stock markets — as large as 16 percent for the US.