by Geza Molnar
BUDAPEST, March 28 (Xinhua) -- The U.S. protectionism measures will backfire on the United States' own economy, warned Andras Inotai, research professor at the Centre for Economic and Regional Studies of the Hungarian Academy of Science's Institute of World Economics.
"The implications of American protectionist measures on the American and world economy are clearly negative," Inotai told Xinhua in an exclusive interview.
A THIRD VS. TWO THIRDS
"When the customs duties on steel and aluminum products were announced, I was in Mexico and the newspapers there immediately examined what consequences would it have on U.S. companies, if the tariff of steel products would be raised to 25 percent," he said. It turned out that only a third of U.S. companies would benefit from the increase, whereas two thirds of the companies would suffer losses, as these firms used to rely on cheaper imports to maintain their competitiveness.
The well-known construction material firm Caterpillar Inc. would be among the biggest losers, according to Inotai.
"We live in a mutually dependent, interdependent world that Trump simply cannot understand. He has no idea of the economy, or of how to manage economy from a state administration. You have to understand that the management of companies is another story," he explained in a rather critical tone towards the U.S. president.
He also explained that the constant repetition of Trump's slogan "America First" did not change the fact that the U.S. connected to the world with a thousand links, and therefore, the decisions would have immediate, or at least rapid implications to its very own economy.
Inotai pointed: "In the present case, some companies will start to produce, but more expensively because they have to replace the cheaper import."
"We have to ask ourselves who will buy these more expensive products in America? And if they are purchased, how are they going to perform in the international competition? How will all of this affect the U.S. stock market and the American dollar?" the expert questioned.
LESSONS OF HISTORY
Painting a less than optimistic future, Inotai recalled the disastrous consequences of protectionism in history, some of which even led to war in the last century: "The most important lesson in the Great Depression of 1929 was that everyone had chosen to react by closing their markets, and thus achieved to deepen the crisis. No wonder that in the 2008 financial crisis, no one tried to resolve the situation with a protectionist economy."
The lessons from history should not be put aside today. The expert has foreseen a ripple effect of the U.S. tariff plans. "One side imposes duty rates, the other replies in the same way, and so on."
In the end, these decisions will ultimately hit back at the American consumers and the "Made in the USA" products, according to the expert.
Inotai believes that the potential price hikes will also have a backfire on Trump. "Now if Trump is going to thank them for their support with price hikes reaching 40-50 percent, then people will turn away from him very quickly."
WAY OUT
While describing the U.S. tariff plans as a "own-goal", the Hungarian expert believes a sound solution to any trade dispute should not bypass the World Trade Organization (WTO).
"Different complaints will be filed at the WTO, and the WTO will decide who is right, who is wrong, but this is a long process, and then it will find appropriate penalties," said Inotai.
The American protective measures severely violated the multilateral trade mechanisms, as well as the WTO, said Inotai.
U.S. protectionist measures bypassing the WTO will have negative impact on both U.S.-China and U.S.-EU trade ties, according to the expert.
"The effects will be very negative, particularly considering the different sectors, such as the German automotive industry," Inotai said.
"Competitiveness should be increased, not import duties," Inotai gave his understanding about the final way out of the current problem.