The cost to the U.S. economy from President Trump’s protectionist policies will be evident in almost every area of economic activity, perhaps none more so than shipping and trade. But, according to analysts, the most dramatic impact will not be easily seen. Lost opportunities, particularly those in emerging markets, could cost the United States’ economy dearly.
Emerging markets were first to rebound from the Great Recession, and during that period American exports to emerging markets helped to offset declining demand from other trading partners. U.S. exports to the EU fell by 10% during the 2008-2010 period, versus the approximate 10% gain during the same time to emerging markets.
Today the combined GDP of emerging markets is much larger than that of the U.S. Albeit emerging markets are now growing more slowly, even their cooler pace is more than double what the United States economy could hope to achieve this year. Any return to protectionism could bring the sky down on decades of trade-based economic growth that has lifted countless millions out of poverty.
“Don’t damage the growth potential in developing countries which is crucial to inclusivity. These are the expectations the new [U.S.] administration needs to hear.” – Pravin Gordhan, South African Finance Minister, at Davos 2017
Since the beginning of the decade, U.S. exports to emerging markets have risen twice as fast as exports to the developed world. Emerging markets now account for a record 38% of United States’ goods exports. At the current rate, emerging markets’ demand will account for approximately 45% of exports within a decade. This will add an average of $50 billion a year to the United States’ foreign revenues.
Missing out on potential growth in emerging markets cannot be offset by growing opportunities at home in the United States. The ultimate impact of protectionism is not just about the damage here and now. That damage we can see will be dwarfed by the shadow of the cost of losing so many growth opportunities. A trade war would restrict U.S. access to emerging market consumers exactly when those consumers are ready to take advantage of what America has to offer them.