A Committee to Save the Rest of the World

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[Note: this is a more elaborate version of a comment I did for the Hinrich Foundation. Do read that one if you like shorter pieces!]The first months of the second Trump administration has been a wild ride. On day one, Trump announced disengagement from the Paris Agreement and the WHO, and ordered a review of US engagement in all international organizations including IMF and World Bank. The US also opted out of the G-20 this year, slashed commitment to international development, withdrew major support for Ukraine in their fight against Russia’s invasion, and . The US has also imposed tariffs on its closest trade partners Canada and Mexico, and threatened them against its allies the EU, Korea, and Japan as well as the rest of the world. The Wall Street Journal editorial page, a vanguard of conservatism, called it The Dumbest Trade War in History.Part of the damage is already done. Trade policy uncertainty is at historic highs, and overall policy uncertainty is not far behind. Stock markets in the US reacted sharply negative, the dollar weakened, and consumer confidence took a plunge. This uncertainty has real consequences: investors take a wait and see attitude, and consumers postpone large acquisitions of consumer durables and housing. Goldman Sachs estimated that trade policy uncertainty alone could cost the US some 0.3 percent growth this year, and more for those countries heavily dependent on exports to the US. This has started to show in downward revisions of economic growth projections of investment banks. The IMF and World Bank both see a trade war as a major downside …