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Trade war: is Poland a green island again?

10 Apr 2018 16:21|Marcin Lipka

“A real trade war can threaten the whole world’s economy. It is possible, however, that the Polish economy will come out of trouble with the clear increase in tariffs between countries. Green Island 2.0? This is quite a realistic scenario,” writes Marcin Lipka, Conotoxia Senior Analyst.

Marcin Lipka, główny analityk Cinkciarz.pl

According to the majority of economic theories, free trade should pay off for all its participants. Specialization in the production of goods or exchange of foreign services increases competition and innovation, reduces prices and improves global economic potential. The introduction of additional customs barriers therefore has the opposite effect. This negative effect, however, is unevenly distributed among individual countries. Some may even benefit from a special geographical position or a diversified economy.

Who will lose the most?

Recent announcements of trade restrictions between China and the United States stimulate a search for answers to the question: what might happen if the clash between superpowers turns into a more protectionist economic policy in the world?

The Bloomberg Economics team ("How bad could it get?" study), using one of the leading macroeconomic models (NiGEM), built scenarios on how the introduction of duty will affect GDP growth and the current accounts balance of individual countries over the next quarters.

If the world's customs duty increased by 10%, then Canada would suffer the most. Its GDP would be lower by approx. 1.8% by 2020, compared to the baseline scenario. Also, the current account balance (mainly trade balance) deterioration in relation to GDP would be one of the largest in the case of Canada and would reach about 2.6%. This would primarily be the effect of lower consumption, higher inflation and lower trade exchange with the US.

Besides Canada, Mexico, South Korea, Indonesia and Turkey would also suffer significant losses. The United States could also suffer, but mainly because of lower GDP. However, the current account balance would improve (smaller imports), as compared to the baseline scenario.

Green Island 2.0, or will Poland be a beneficiary?

One of the few winners of global customs restrictions may be the region of several developing European countries, known as "Developing Europe". Its leading country is Poland. Both in the case of GDP and current account balance, there would be an improvement within 0.3% and 0.3 percentage points respectively, compared to the baseline scenario.

The hypothesis about Poland’s good position is also confirmed by the result of Slovakia, whose GDP growth (but not the trade balance) will be slightly faster in the case of customs restrictions, than if the status quo was preserved.

What can the solid condition of our region be a result of? In the diversified and flexible Polish economy, most exports go to the European Union. Obviously, customs duty will not be introduced there. In addition, Poland also continues to have its own currency and the hypothetical weakening of said currency would positively affect the current account balance and GDP.

As a result, Poland could shine on the international arena with relatively fast economic growth, as in the case of the financial crisis in the previous decade. The words "Green Island 2.0" would probably hit the colloquial dictionary in Poland.

10 Apr 2018 16:21|Marcin Lipka

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