Mathijs Bouman: "Brexit could cause us just as much damage as an ongoing trade war"

The global economy is an unpredictable but closely connected whole, with topics such as Brexit and trade wars currently dominating the news. However, we should not forget that we live in a hopeful time in which technology can provide solutions, says economist Mathijs Bouman. He will be speaking at the 8th FHI member networking/management event give a lecture on the central theme 'clarity in international chaos'.

By: Dimitri Reijerman

Since President Donald Trump started a trade war against China, economists have been pointing out the damaging effects on global trade. The Netherlands and the EU are already feeling the effects, says Bouman: “At the beginning of the trade war, there were still ideas that Europe could profit from it. ING wrote something about that, and that is theoretically substantiated: when two dogs fight over a bone, the third one takes it. But Europe may well be the biggest victim of the trade war, because we are the largest supplier to the Chinese economy, especially from Germany. The EU is a more important trading partner for China than the US.”

He continues: “You can also say, for example in metal you hear that, that the Chinese now need a market to dump surpluses. The main disadvantage for the Netherlands, as the most globalized country there is, is that world trade is stagnating because of all that misery. The so-called second and third round effects are big, because China is such a huge economy.”

Bouman does not dare to make a prediction about whether the trade war will end soon: "The outcome is completely unpredictable, just like Brexit. It depends on Trump's personal temperament and that of the Chinese authorities. It also depends on the American elections. There are signs that there would be a deal, but the ceremony has already been postponed."

And returning to the British 'soap opera' surrounding Brexit, Bouma says that the impact of the possible British departure from the EU has been limited so far: "I think that on balance we have not yet noticed many consequences of Brexit. You do see that certain economic activities are no longer being carried out and that exports to the UK have not grown. Preparing for worse economic times does yield growth in the short term. The actual disruption has yet to come, but Brexit could cause us just as much damage as the festering trade war."

Cooling German economy

The economic situation in the eastern neighbours is causing Bouma more concern: “The rapid cooling of the German industry: of the developments mentioned earlier, this is the most realistic, because it is happening now. Things have gone completely wrong there in the past year and a half. The Dutch and German economies as a whole have been able to defend themselves against that, because consumption has not collapsed yet. But employment in industry in Germany and the Netherlands is declining. The Chinese are buying fewer cars anymore, and that has been the blow to a faltering German industry.”

Another prominent theme at the global level is of course climate change and the Paris Agreement. Bouman is optimistic. He thinks that a turning point has been reached, especially in public opinion: “These kinds of things don’t work top-down, they have to happen bottom-up and that’s really happening now. During the credit and Euro crisis, there was no attention for it at all. The Netherlands is a good example, and it really is the dirtiest country in Europe. Moreover, the technology is on our side. Within ten years, fossil solutions will be outcompeted by clean ones. There is also more enthusiasm for proper pricing. That’s the real dealmaker.”

And in the eyes of the economist we are also living in 'golden times': "Things are going very well, we are not growing as fast anymore, we have an ageing economy. But we have a long period of growth behind us and the past twenty years we have seen a huge decrease in poverty. Nobody would want to be born in another year and in another place than Western Europe."

Bouman concludes by briefly touching on a widely felt problem, but again gives it a positive spin: “The tightness on the labor market is the fourth factor that causes problems in many sectors. That is indeed a structural problem, but the basic problem is a very good one: everyone who wants to work, can work.”

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