Paris: Big emerging economies like China and India will suffer more than developed countries if trade tariffs return to 1990 levels, the OECD said on Thursday in an update of its long-term economic projections.
The Organisation for Economic Cooperation and Development estimated that higher average import tariffs would gradually knock half a percentage point off real global GDP growth.
By the end of the OECD’s forecast horizon in 2060, that would leave world average living standards about 14 percent lower than they could otherwise be expected to be.
However, Brazil, Russia, India, Indonesia and China could expect an 18% loss of per capita real GDP by 2060, the OECD projected.
The 36 developed countries belonging to the OECD would see living standards fall 6% on average and the euro area only 4.5% given the high level of trade among them and the fact EU tariffs were already low in 1990, the OECD said.
In a business-as-usual scenario without significant reforms, annual global economic growth was seen gradually slowing over the next 40 years from 3.4% currently to 2.0%.
Global growth would slow as rates in the big emerging economies, now on average over 5%, converged with the 2% expected on average in OECD counties by 2060.
China’s share of global economic output was seen peaking in the 2030s at about 27% while India’s would keep growing. By 2060, both were expected to make up a fifth of global output and OECD countries over 40%.
Emerging economies would have a much better chance of raising living standards to OECD levels by 2060 if they improved governance and education, the OECD said.
Meanwhile, OECD countries that made their product markets more competitive could raise living standards by 8%. Labour market reforms could add another 10%, which could reach 14% in countries seen as having the most ground to catch up, such as Italy, France and Spain.