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International trade

The Dangers of Zero-Sum Thinking in Economic Policymaking

Strategic Insights

— 2 min read

The Scottish Fiscal Commission's upcoming publication of updated economic forecasts highlights the unpredictability of the current economic outlook, with global trade tensions being a major contributor. The ongoing trade disputes between the US and its trading partners have led to significant uncertainty, with the IMF downgrading its global growth forecasts for this year and next. The UK economy, with its high trade intensity, is particularly vulnerable to these developments, with potential reductions in growth, higher inflation, and increased borrowing costs. Moreover, the rise of zero-sum thinking in economic policymaking poses a significant challenge to addressing complex long-term challenges, such as climate change.

Key Takeaways:

  • The Scottish Fiscal Commission's updated economic forecasts will highlight the unpredictability of the current economic outlook.
  • Global trade tensions, particularly between the US and its trading partners, are a major contributor to this uncertainty.
  • The UK economy, with its high trade intensity, is particularly vulnerable to these developments, with potential reductions in growth, higher inflation, and increased borrowing costs.
  • The OBR estimates that a scenario of US tariffs, alongside retaliation from trading partners, could reduce UK growth by around 1% in 2026/27.
  • Zero-sum thinking in economic policymaking fails to acknowledge that gains for one individual or country can come at the expense of another.
  • Economic theory can provide a guide to addressing complex long-term challenges, but policymakers must avoid single, de-coupled policy debates to counter zero-sum thinking.
  • The Scottish Government's Adam Smith Business School, where Professor Graeme Roy is based, emphasizes the importance of understanding the benefits of trade and addressing legitimate concerns about its distribution and impact.

Statistics:

  • The UK economy's trade intensity is around 64% of GDP, above the G20 average of 55% (OBR).
  • The IMF has downgraded its global growth forecasts for this year and next (IMF).
  • A scenario of US tariffs, alongside retaliation from trading partners, could reduce UK growth by around 1% in 2026/27 (OBR).
  • The effective tariff in the US would rise to around 25% if fully implemented in July, the highest rate in over a century (IMF).
  • The Smoot-Hawley Act, which imposed high tariffs, contributed to the Great Depression (IMF).

Sources:

  • "Scotland's Economic Forecasts Will Vary Depending on the Future of Tariff-Related Trade Agreements" (unnamed source)
  • Read more: "UK must seek to 'rebuild' trade relationship with EU, says Bank governor"
  • "Unsurprisingly, the IMF has downgraded its global growth forecasts for this year and next."
  • Read more: "Scottish Government seeks clarity over UK-US trade deal"
  • "Of course, unrestricted free trade is not costless nor desirable. There are legitimate concerns about how the benefits of trade are distributed between and within countries."
  • Read more: "We must fight for free trade. Our wealth depends on it"
  • Anton Muscatelli and Graeme Roy, "The myth of zero-sum trade" (paper for the National Institute for Economic and Social Research)

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