US Protectionist Trade Policies Increases Unemployment
The protectionist trade policies
of US President Donald Trump has led to sharp increase in unemployment not only
in USA but also in Mexico. A study done by researchers at University of Geneva
(UNIGE) and its report published in the Journal of the European Economic
Association show that such policies would have a negative impact on welfare and
employment in both Mexico and the United States.
Economists usually do not study the impact of trade policy changes on unemployment. But it is an important indicator of a country's economic health, according to Celine Carrere, a Professor at the Geneva School of Economics and Management (GSEM) of the UNIGE. The study shows that repealing the North American Free Trade Agreement (NAFTA) – an announcement made by President Trump shortly after taking office – and the imposition of 20% bilateral tariffs between the US and Mexico in all sectors would reduce average welfare by 0.31% in the US and by 6.6% in Mexico. “Furthermore, this policy would increase unemployment by 2.4% in the United States and 48% in Mexico!”, emphasizes Frédéric Robert-Nicoud, professor at the GSEM and co-author of this study.
In their study, UNIGE researchers reveal in a second scenario the impact of Trump’s economic policy on the automotive industry. “A US increase of trade barriers on motor vehicles against imports from all countries bar Mexico and Canada would lead to a decrease in long-run welfare and employment in both Mexico and the US as well as in major car-producing countries”, warns Anja Grujovic, researcher at the Center for Monetary and Financial Studies (CEMFI) in Madrid, Spain.
The GSEM study thus shows that far from favoring his country’s industrial players, Donald Trump’s protectionist policy has a negative impact on them in the long term. Moreover, it not only affects Americans, but also neighboring OECD countries, such as Mexico. “In this way, we show that protectionism often hides negative aspects that only emerge over time, sometimes after the end of a president’s term of office, who can then be satisfied with the results obtained when he was in power”, Frédéric Robert-Nicoud concludes.