06 April 2018

ECB's Cœuré: The consequences of protectionism

Benoît Cœuré, Member of the Executive Board of the ECB, shares a central banker’s perspective on potential structural changes to the current global trade regime – one where restrictions to trade are managed through multilateral agreements.

He flags two main implications should impediments to the free movement of goods and services increase significantly. The first is the effects higher tariffs would have on growth and inflation in the near to medium term. There are a number of important channels to consider, including the direct impact of tariffs on prices and growth, changes to financial conditions and effects on expectations and confidence. The second main implication is the possible impact on long-run potential output growth, and how that may influence the conduct of monetary policy.

Greater global economic integration has boosted living standards worldwide and lifted millions out of poverty. Yet, its distributional impacts both across and within countries have not been adequately addressed, a fact that ultimately provides the political motivation for the protectionist moves we observe.

Winding back globalisation is the wrong solution to address these concerns. A retreat from openness will only fuel more inequality as import prices rise, goods become dearer and real incomes fall. It would deprive people of the undisputed economic advantages that trade and integration bring and thereby exacerbate economic hardship for the poorest in society. And it would breed distrust among nations, making for a more unstable international order.

The distributional and social effects of greater economic integration should rather be addressed by targeted policies that achieve fairer outcomes. This requires a strong political and institutional landscape which can ensure that the geographical scope of policy action and political debates coincide with the scope of market integration. This is a landscape which in Europe is best provided by the European Union.

By allowing Member States to recover some of the state functions that have been eroded by globalisation, the European Union is a vehicle that brings the benefits of economic openness to the greatest number of its citizens while protecting them against untrammelled global forces. It represents the most progressive model we have for taking back control of globalisation by addressing people’s concerns over open markets and fair competition – doubts that individual countries on their own cannot dispel.

Full speech

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