This content is not available in your region

Mounting trade barriers may push up investment costs - IMF

Access to the comments Comments
Mounting trade barriers may push up investment costs - IMF
Text size Aa Aa

By David Lawder

WASHINGTON (Reuters) – Rising trade tensions, tariffs and other barriers threaten to erode a key benefit of trade integration — lower capital investment costs — especially for emerging markets, new research from the International Monetary Fund shows.

The research, released on Wednesday as part of the IMF’s latest World Economic Outlook, found that machinery and capital goods prices have tumbled over the past 30 years amid efficiency gains from globalisation, increased productivity and deeper trade integration.

These price reductions have helped make investment an engine of economic expansion in emerging markets, which typically have higher investment costs than wealthier economies due partly to the need for imported goods and technologies. Trade has provided an often-overlooked “tailwind” for such investments, the paper said.

For example, the falling cost of solar and wind power products has allowed these technologies to supplant hydro-electric power as the renewal energy sources of choice in emerging markets, the paper said. It also showed that Colombia’s tariff reductions in 2011 contributed to a 0.4 percent increase in investment in capital goods.

But since the mid-2000s, these effects have waned as trade and productivity gains have slowed, and rising trade barriers could reverse some of these benefits, the IMF said.

“Hikes in tariffs and non-tariff barriers could disrupt cross-border supply chains and by making production less efficient, slow or even reverse the downward trend in capital goods prices,” the Fund said.

Disrupted supply chains — a phenomenon already happening as U.S. tariffs force production of some products away from China — could raise the cost of goods.

The effect could be more pronounced in emerging and developing economies, which already pay a relatively higher price for goods such as computers and machinery, partly because they are less efficient at producing such goods and need to import them.

Many emerging market and developing economies still maintain higher tariffs and other trade barriers that raise relative prices for domestic investors.

In 2011, effective import tariffs on capital goods were about 4 percent in emerging market countries and about 8 percent in low-income developing countries, compared with close to zero in advanced economies, the IMF said.

(Reporting by David Lawder; Editing by Bernadette Baum)

euronews provides breaking news articles from reuters as a service to its readers, but does not edit the articles it publishes. Articles appear on for a limited time.