Economies sound alarm on Trump threat to EBRD trade
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Economies sound alarm on Trump threat to EBRD trade

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Donald Trump may have softened his stance on protectionism but the EBRD and individual countries in its region are concerned that any worsening in trade relations will damage their prospects for growth

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Economies across the EBRD region sounded a warning bell on Wednesday over the impact on regional growth from the threat of protectionist policies launched by US President Donald Trump. In an interview with GlobalMarkets, EBRD chief economist Sergei Guriev said several countries were worried Trump would implement his campaign promises to protect American jobs and companies.

He said that while protectionist rhetoric had softened in recent months, “every country” across the EBRD region “benefits from free trade and globalisation.

“We don’t see specific protectionist measures [emerging from the US] at the moment,” he said, adding that nothing could be ruled out. “[Trump’s] protectionist agenda scared a lot of the countries around the region, and it still does.”

Donald Trump had indicated he is prepared to risk triggering a trade war whether by raising tariffs, or introducing border taxes that penalise imports relative to exports.

According to the White House’s formal trade policy agenda, the administration wants to devise a new trade policy that “defends American sovereignty, enforces US trade laws, uses American leverage to open markets abroad and negotiates new trade agreements that are fairer and more effective both for the US”.

One senior European banker at the EBRD meetings who declined to be named said the economies most affected would be those that were more dependent on flows of capital continuing to flow into emerging markets.

“Turkey and Russia will be hit hard,” he said. “If Trump cuts corporate tax rates and gives amnesty to capital flowing back to the US, that money will no longer be committed to emerging markets, which will lead to some funds flowing out of Russia, out of Turkey, out of central Asia, out of the Caucasus.”

Elmir Hasanov, chairman of the board at Azerbaijan lender MuganBank, agreed his country would be hit in the short term but insisted it would benefit in the long run as US firms lost faith in their president.

“Short term effects are negative because Trump wants capital to flow back into the US. But in the longer term, people will realise that Trump’s not going to do anything good for America, it will leave again. That will benefit us,” he said.

WORRIED BY CHINA, TURKEY

Guriev cited other risks to EBRD growth. He warned that any nasty surprises in China, which faces a series of painful challenges ahead as it seeks to rebalance its economy, slash debt and deflate a vast property bubble, would hit the region hard. “If something happens to China, we will feel the pain,” he said.

Events in Turkey continue to vex analysts and global investors, Guriev said. Beset by currency and political volatility, low levels of producer and consumer confidence, Turkey’s economy is set to shrink this year.

“The biggest threat to Turkey’s economy is related to politics and security,” Guriev said. “Other major challenges relate to [waning inward] capital flows and currency volatility and depreciation. What Turkey needs is equilibrium.”

There are good signs: growth in central Europe and the Baltics will accelerate in 2017 to 3%, remaining static in 2018. Guriev also highlighted positive recent and pending monetary policy developments, most notably the recent decision by Egypt to allow its currency to float freely, and signs that Uzbekistan was planning a similar move. 

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