Article by Tim Wallace
Theresa May has been urged to keep trade as free as possible to promote economic growth in the decades to come, as she enters Brexit negotiations on Monday.
If the world turns its back on free trade and plunges into protectionism, the UK’s economy would be 3.7pc smaller in 2035 than it would otherwise be, analysts at Zurich have warned.
That is a shortfall of around $140bn, (£109.5bn) according to its estimates.
By contrast if the world embraces a radical new round of free trade and globalisation, Zurich believes it would add another 3.6pc to the UK economy in the coming 20 years, equivalent to adding another $140bn to our national income.
Boris Johnson says he is sure that Theresa May can pull off free trade deals01:37
The insurance group’s central forecast is that the UK economy will grow by a total of 33pc over the next 20 years, so different trade policies could push that up or down by more than 10pc.
“Keeping trade as open as possible is the main message, and to recognise that when you make a change in trade relations with other countries there are all sorts of knock-on effects,” said John Scott, Zurich’s chief risk officer for commercial insurance.
“They are not just to do with trade but are geopolitical as well, which can create unintended consequences and surprises,” including damaging supply chains and so hitting business
“It is about treading the balance between the benefits of a more national focus versus the obvious clear benefits of global growth and achieving, in a global sense, greater GDP growth.”
He said that a wave of protectionism would have particularly serious consequences for the poorest people in the world.
In the “protectionist victory” scenario in his analysis, “a significant number of people would remain in poverty – around 120m people, which is equivalent to the entire population of a country like Japan or Mexico.”
Meanwhile the Bank of International Settlements (BIS) – known as the central bank for central banks – has insisted that globalisation is a force for good in the world.
Facing a tide of anti-globalisation sentiment, the technocrats have published a response arguing that economies have not reached or passed so-called “peak trade”.
“Globalisation has greatly contributed to higher living standards worldwide and boosted income growth. Over the past three decades, it has been an important factor driving the large decline of the share of the world population living in significant poverty, and of income inequality across countries,” said BIS in its annual report.
Trade growth has slowed since the financial crisis and has grown more slowly than the wider economy in recent years. But the group argues that there is no reason to think this slowdown will last forever, or that trade is going into decline.
Instead, much of the slowdown in cross-border finance has been focused in Europe rather than affecting the wider world.
The analysts added that many of the complaints about globalisation, particularly the idea that it has boosted inequality in rich countries, are either mistaken, or could be addressed with domestic policies in those countries.
“In practice, trade and financial openness appear to have made only a fairly small contribution to the increase in income inequality. For financial globalisation, this effect is likely to have been somewhat larger in low-income countries,” said BIS. “Rather, technology appears to have been the dominant factor: the returns to skilled labour, which uses technology more intensely, have increased substantially.”
It said governments should try to address the distributional effects of trade, which often focus on workers who lose jobs to foreign competition.
“The distributional implications of trade and financial openness need to be addressed to ensure fair outcomes within societies and continued support for growth-enhancing policies, including global commerce,” the report said.
Source : Telegraph