The impacts of non-tariff measures on the global economy

Since 2019, there has been a sharp increase in the number of trade-restrictive policies, particularly of non-tariff measures¹ (NTMs).² According to the global trade alert, 4,430 trade-restrictive policy interventions were introduced in 2023, the majority of which were NTMs, such as subsidies (64%) and export-related measures (12%).³ This is, in part, due to a growing emphasis on industrial policies, aimed at protecting domestic and national security interests. Other restrictive measures stem from new environmental policies, as countries follow through on climate-related pledges. Regardless of intent, restrictive NTMs on goods trade come at a cost, particularly to middle-income exporting nations.

The economic cost of NTMs affects both protagonists and targets

In a hypothetical scenario simulated using the GTAP⁴ model, Economist Impact considered the global welfare loss (measured as a percentage of GDP) of a 50% increase in NTMs across industrial and high-tech sectors by high-income countries on middle-income countries and, in turn, considered retaliatory impacts. While this example is illustrative, it shows the risks to economic growth posed by escalating trade-restrictive policies.

In our model, a 50% increase in NTMs by high-income countries on middle-income countries would result in welfare losses to both groups in the following 12 months. Middle-income countries would fare the worst, experiencing a 1.42% GDP contraction, while high-income countries would also lose out, with GDP falling 0.08%. In line with the literature, industrialised middle-income countries exporting to high-income countries are most affected—under the NTMs, their products may fail to comply with new standards or regulations, be considered relatively more expensive than domestic goods that have been subsidised, or no longer qualify for government procurement. High-income countries also lose out as the NTMs implemented by their governments shield their domestic industries from lower-cost imports, thereby reducing competition and productivity. Overall, global GDP would shrink by 0.57%. Low-income countries, meanwhile, would benefit from some trade diversion effects, resulting in a 0.07% increase in GDP.

A retaliatory increase in NTMs by middle-income countries on high-income countries across industrial and high-tech sectors would reduce global GDP by 1.28% in the following year. Middle income countries would suffer the most, with GDP losses amounting to 1.62%. High-income countries would also be significantly impacted, with welfare losses at 1.1% of GDP.

NTMs on the rise?

Restrictive NTMs are likely to continue affecting international trade into 2024 and 2025, as new environmental regulations are implemented and geopolitical tensions between the US and China remain high.

Environmental policies, aimed at aligning countries with climate targets, constituted a large portion of trade-restrictive measures over the past year. In 2023, 2,366 environmental-related NTMs were introduced, affecting 3.5% of all tradable goods and covering 26.4% of global trade, worth US$6.5trn.⁶ Goods in carbon-intensive industries, such as the automotive and heavy industry sectors, will be the most affected. The Carbon Border Adjustment Mechanism (CBAM) in the EU is an important example that will have far-reaching consequences. Producers in industrialised middle-income countries, such as China, Brazil, India and Turkey, where environmental regulations for products are less stringent, will likely be impacted the most.⁷

Moreover, as the geoeconomic rivalry between the US and China intensifies, NTMs aimed at protecting domestic and national security interests (such as US export controls on semiconductors and China’s export ban on graphite),⁸ will remain in force and continue shaping the global trade environment.

Businesses operating in these markets will have to carefully navigate this web of regulations, standards, subsidies, export controls and procurement restrictions. Quantifying the impact of NTMs is a challenge, which impedes a true assessment of its effect on businesses and economies. But what is certain is that NTMs will incur costs on global trade for years to come; it's an element that businesses and policymakers cannot afford to ignore.