Are Tariffs Gasoline to Global Economy’s Napalm?

Donald Trump has made no secret that, if elected President, he’ll slap protectionist tariffs on the United States’ trading partners. He feels, for instance, the Chinese, particularly since they’ve devalued their currency in 2015, have been eating our lunch. As he views the problem, if the situation is allowed to continue, China – the world’s second largest economy – will soon displace the United States as the world’s largest economy.
But if a President Trump followed through on his campaign promise, the world economy could easily continue to slow down. Protectionist policies and punitive tariffs almost always result in retaliation by trading partners.
This kind of scenario would most certainly make a bad situation worse. According to an October 5th article by Simon Nixon in The Wall Street Journal, global trade has been growing at a rate of 3% since 2012 — nearly half the rate it’s grown in the past three decades.
According to data from the International Monetary Fund (IMF), this slowdown in global trade holds true for developed and underdeveloped countries. The World Trade Organization (WTO) now forecasts that world trade will grow by only 1.7% this year.
If the trend continues, it could prove a setback for declining prices in developed countries and better-paid jobs in emerging economies. While an IMF analysis shows that this global trade setback stems primarily from a decline in investment rather than the deliberate actions of governments, protectionist policies are still a big piece of the puzzle. The WTO has documented a dramatic increase in retaliatory trade duties in the last two years.
In the current global deflationary climate, nations can ill afford the effects of protectionist policies, particularly since central banks have run out of methods for tweaking their economies. By driving down interest rates to zero and near zero, they have effectively prevented even mild inflation to take hold.
Every economy needs some inflation to grow. An economy entirely free of inflation will not allow businesses to invest or to expand their payrolls. And as things now stand, the entire global economy is mired in deflation and, therefore, inhibited growth.
Those of you looking to keep your retirement accounts from eroding can’t afford to wait for economic forces outside your control to kick in. If you’re looking to shelter your nest egg from a collapse in value, investing in physical gold is a marvelous way to do so. Right now gold is in a corrective phase and therefore carries an appealing price.
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