The President of the European Central Bank, Christine Lagarde, warned that this trend towards restricting trade may revive inflationary pressures and push prices to rise, which complicates the task of central banks in maintaining price stability, and prompts experts and interested parties to wonder whether the global economy will face the risk of inflation. Who has the world always sought to control? Do trade barriers threaten the gains made in combating it?
Lagarde’s warning came in a statement during the annual meetings of the International Monetary Fund and the World Bank Group in Washington, where she said: “International cooperation has become more important than ever to ensure that the global economy continues to grow at current rates, and it is essential that legitimate concerns about security and the resilience of supply chains do not lead to… into a spiral of trade protectionism.”
Lagarde indicated that further division in the global trading system is likely to push prices higher, whether by increasing the cost of inputs for companies or by reducing the alternatives available to current suppliers if the need arises, and it will be difficult for central banks to ensure price stability under these circumstances. “.
Anti-inflation efforts
Over recent years, major central banks have intensified their efforts to combat inflation, which has witnessed a noticeable rise as a result of economic crises and supply chain disruptions, which has put unprecedented pressure on consumers. The US Federal Reserve and the European Central Bank have adopted…Bank of England Other strict monetary policies included frequent interest rate hikes.
In the United States, inflation reached 9.1 percent in June 2022, the highest level in more than four decades, as the Federal Reserve tried to slow it by raising interest rates, reaching 2.4 percent last September.
While the peak of inflation in the Eurozone reached 10.6 percent in October of the same year, recording the highest level historically, as the European Central Bank tried to slow it down to reach 1.7 percent last September, which is a figure lower than the Central Bank’s target of 2 percent, and inflation in the United Kingdom reached the highest level. For 41 years, it was at 11.1 percent at the end of 2022, and after the Bank of England’s attempts to reduce it, it reached 1.7 percent last September, which is its lowest reading since April 2021.
Trade barriers movements on the global stage
The global trade arena is witnessing noticeable movements towards imposing trade barriers, with the United States emerging as one of the most prominent actors in this trend. The trade war between America and China has escalated since 2018, when Washington and Beijing imposed customs duties on each other’s products worth $34 billion, and the value of Chinese products, on which Washington imposed customs tariffs during the era of former US President Donald Trump, reached about $350 billion, according to the report. Press reports.
Despite the change in power in the White House and the arrival of President Joe Biden, tensions between the two countries have doubled and expanded to include the chip, artificial intelligence, and electric car sectors. They also extended geographically to include Europe, which joined its ally America in imposing customs duties on many Chinese products, which led to an increase in the cost of… Imported goods and their impact on local prices.
In this context, Lagarde said: “Economists at the European Central Bank estimates indicate that new barriers targeting strategic products may lead to production losses equivalent to 6 percent of global gross domestic product.”
How do trade barriers contribute to inflation?
In an exclusive interview with the “Eqtisad Sky News Arabia” website, the economist, Dr. Imad Al-Din Al-Musabeh, professor of economics at the colleges of the Arab East, confirms that trade barriers maybe It could lead to the return of inflation, and could even pose a threat to the gains achieved in combating it. He points out how trade barriers contribute to inflation according to the following:
- Raising the prices of imported goods: Customs duties, quotas, and other trade restrictions increase the cost of importing goods, which is directly reflected in their prices in the local market. When importing a good becomes more expensive, consumers are forced to pay more for it, whether it is a final good or an intermediate product involved in the production of goods. Other.
- Reduced competition: Trade barriers reduce foreign products’ competition with domestic products, allowing domestic companies to raise their prices without fear of losing market share. This is especially true for sectors that rely heavily on imported inputs.
- Impact on supply chains: Trade barriers disrupt global supply chains, leading to shortages of some goods and higher prices, and companies may be forced to search for alternative suppliers that are less efficient or more expensive, which increases production costs.
- Effect on currencies: In some cases, trade barriers can cause the value of the domestic currency to fall, increasing the cost of imports and leading to higher imported inflation.
Dr. Al-Musabeh raises the question of whether trade barriers are the only reason for the return of inflation and answers the question himself, saying: “Trade barriers are not the only possible reason for the return of inflation. Rather, there are other factors that play an important role in the return of inflation, such as:
- Monetary policies: Central bank policies related to interest rates and the money supply can significantly affect inflation.
- Prices of energy and raw materials. The rise in prices of energy and raw materials globally affects production costs and pushes inflation upward.
- Aggregate Demand An increase in demand for goods and services without a corresponding increase in supply can lead to higher prices.
- Geopolitical events. Geopolitical events, such as wars and conflicts, can affect supply chains and lead to higher commodity prices.
The risk of inflation still exists
For his part, the economic expert, Dr. Mustafa Badra, explained in his speech to the “Eqtisad Sky News Arabia” website that the global economy is essentially still facing the effects of inflation that have not yet ended, and he pointed out that consumers and societies in general are rushing to feel the declines in inflation given that some major central banks have begun to reduce… Interest rates, which gave them the impression that global inflation had declined, while the risk of inflation still existed and needed a longer period to control it. Reaching low levels achieves general acceptance, so that prices fall to satisfactory levels.
Imposing more trade barriers increases inflation complications
He stressed that trade barriers constitute a major challenge to global economic stability, especially with the possibility of increasing trade restrictions following the US elections. He pointed out that imposing more barriers in the context of the trade dispute between the United States and China may contribute to raising prices further, which increases the complexity of the inflation file and increases fears in economic circles. He expected these pressures to continue for at least another year before clear progress is achieved in curbing inflation to the satisfaction of societies.
He stressed that the volume of debts and loans that have accumulated on countries over the past years has become a heavy burden on economies, which has led to a rise in Interest ratesIt negatively affected their budgets, and thus this is also reflected in the general level of prices and constitutes an obstacle to improving the economy in the short term.
Regarding the gains in combating inflation, economist Dr. Badra said: “If there are gains achieved, they are not at the expected level compared to before 2020.” Despite major central banks reducing interest rates, inflation still affects societies, noting, for example, that the US interest rate currently ranges between 4.75 and 5 percent, and that reaching more low levels, such as 2 percent, requires time to achieve the effect. What is required in markets, trade and investment.
Dr. Badra concluded his speech by noting that the trade barriers imposed by developed countries, especially those imposed by the United States and the European Union on China, increase the difficulty of exchanging goods. He stated that trade disputes between advanced and emerging economies raise price levels and reflect negatively on… InflationThis became evident during this year.
