Press release - America’s new trade policy and its impact on the Belgian economy

On 20 January 2017, Donald Trump became the 45th president of the United States. Twenty months later, he has increased the customs duties on washing machines and solar panels, steel and aluminium, and thousands of Chinese products. And he plans to impose higher taxes on imported motor vehicles. These unilateral actions by the world’s leading economy have aroused international consternation and led many trading partners to take retaliatory measures.

How can we explain the protectionist turn of the United States? What are the economic implications? Is the Belgian economy vulnerable? These are the main questions that this article tries to answer.

“America first”

America’s new trade policy is totally in line with the campaign promises made by President Trump. It is widely supported by Republican voters as being in “America’s best interests” in accordance with the now famous foreign policy slogan “America first”. The Trump administration’s clear mistrust of the WTO and multilateralism in general bears witness to the importance it accords to national sovereignty and reflects its desire to make full use of the weight of the United States in international negotiations. Diverse though they are, the trade measures adopted largely focus on the same objective: promoting activity and employment in the United States. That applies to the stated intention to renegotiate the North American free trade agreement, the increase in customs duties on steel and aluminium, and the tariff barriers imposed on Chinese products. 

The Belgian economy is exposed to a US-China trade dispute

In this article, the authors show that the impact on the Belgian economy of the new American customs tariffs of 25 % on steel and 10 % on aluminium is fairly small. For example, the Belgian value added involved in American imports of basic metals – which include steel and aluminium – amounts to 0.07% of Belgian GDP. However, the adverse impact on the sectors concerned and their supply chains should not be underestimated. The simulation of the authors shows that Antwerp, Ath, Brussels, Charleroi, Kortrijk, Dinant, Hal-Vilvorde, Huy, Liège, Mons, Philippeville and Tongres are the most vulnerable districts.

The trade war between the United States and China also concerns Belgium as a supplier of those countries. Belgium’s contribution to Chinese exports to the United States, particularly in electrical, computer and optical equipment, amounts to 0.14 % of its GDP. On the other hand, the share of the Belgian economy involved in American exports to China is no more than 0.03 %.

Belgium’s exposure to Chinese sales on the American market is thus almost five times greater than the other way round, whereas Belgian exports to China are significantly lower than its exports to the United States. This apparent paradox reflects the weight of Chinese exports to the United States in comparison with the opposite flows. It also reflects fundamental differences in the contribution of foreign inputs to the production and exports of those two countries. American imports play little part in export production, being destined more for domestic consumption and investment. Conversely, China is typically an intermediate link in global value chains, and its imports make a major contribution to its exports.

Redistributive effects and increased uncertainty

Although they are unprecedented, the tariff barriers erected so far by the Trump administration and the reprisals by US trading partners represent only a fraction of world trade and are of limited macroeconomic importance overall. However, attention should be drawn to their inevitable redistributive effects, their costs in terms of the reorganisation of production and increased uncertainty, and their negative influence on productivity in the longer term. If the current threats concerning all Chinese exports and the motor vehicle industry are carried out, possibly followed by escalating protectionism, that will have other, more damaging effects for the global economy.