Free trade or protectionism?

Three questions for the renowned economics professor Clemens Fuest, President of the ifo Institute for Economic Research in Munich.

Professor Clemens Fuest, President of the ifo Institute
Professor Clemens Fuest, President of the ifo Institute ifo Institut/Romy Vinogradova

Professor Fuest, major industrial nations are increasingly trying to defend their domestic economies by introducing protectionist measures. The most obvious example at the moment is the USA’s use of trade tariffs. Does this really strengthen the national economy?
No. A handful of American steel companies will benefit, but the rest of the economy will be harmed. The losers are above all the steel processing companies, but consumers are hit too, because they have to pay higher prices. All in all, the damage is far greater than the benefits for the USA.

Free trade benefits everyone, because without it many products would be far more expensive.

Clemens Fuest, President of the ifo Institute for Economic Research

Protectionist tendencies have triggered a new discussion about the pros and cons of free trade and protectionism which is often surrounded by misunderstandings. Who benefits from what?
We all benefit from free trade as consumers, because without it many products would be far more expensive. Apart from this, free trade benefits the companies and their employees which hold a strong market position in global competition, either because they produce very cheaply, or because they have a market niche. The losers are the owners and employees of companies that cannot keep up in the global market.

Open markets are very beneficial to Germany as a competitive industrial nation. That is why the export surpluses are often criticised. Justifiably so?
When Germany exports more than it imports, it means that other countries increase their debt with us or that we acquire assets, such as real estate or shares in companies. Rising debt can lead to over-indebtedness crises, less so the direct acquisition of assets abroad. Many people abroad would like to see their companies being utilized better and their products selling better. Whenever German products are more successful on the markets, it can easily cause aggravation. In the long run, German surpluses abroad can actually encourage protectionism, that’s why Germany should lower corporate taxes, for instance, in order to boost domestic investments.

Interview: Martin Orth

Information on German foreign trade and trade policy

Foreign Ministry: Topics overview of Germany’s foreign trade

Ministry of Economics: Dossier on German trade policy

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