Later this month at the Scottish Fiscal Commission we will publish updated forecasts for the Scottish economy.
In normal times, six months is a short period to expect much difference in the economic outlook. However, recent years have seen a rise in unexpected events, from Covid to the cost-of-living crisis, making the outlook more susceptible to change.
Developments 3,500 miles away in Washington DC have been the dominant factor in shaping a fast-moving set of economic conditions this year. While economists had long warned of the global trade risks from a new Trump administration, the scale of protectionist measures and their chaotic rollout has surprised even seasoned observers.
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At the time of writing, significant uncertainty remains about future US and third-country trade policies, even in the short term. This is dragging down growth expectations and fuelling market volatility. Unsurprisingly, the IMF has downgraded its global growth forecasts for this year and next.
If fully implemented in July, the effective tariff in the US would rise to around 25%, the highest rate in over a century, and even greater than during the infamous Smoot-Hawley Act at the start of the Great Depression.
The UK economy is relatively trade-intensive, with trade (imports plus exports) as a share of GDP around 64%, above the G20 average of 55%. The OBR estimates that a scenario of US tariffs, alongside retaliation from trading partners, could reduce UK growth by around 1% in 2026/27.
There would also be higher inflation, increased borrowing costs, and a weaker outlook for the public finances.
The idea of the benefits of trade dates back to Adam Smith and David Ricardo. Trade enables countries to specialise in producing goods and services in which they have a comparative advantage, exchanging them for other goods and services they find relatively costly to produce.
In contrast, reduced trade intensity tends to weaken productivity and act as a barrier to economies of scale from overseas markets.
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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.
Important questions also arise with regard to trade and emissions and the environment, and how globalisation interacts with human rights, democracy, and the rule of law. However, these are questions that can be addressed with appropriate measures, not by a blunt fall back into protectionism.
The heightened scepticism towards recognising the benefits of trade, not just in the US but globally, reflects a wider trend toward zero-sum thinking within economic policymaking. This view holds that gains for one individual or country must come at the expense of another. As Anton Muscatelli and I have written in a paper for the National Institute for Economic and Social Research, this simplistic framing of economic questions has become prevalent in political discourse, not just in trade, but in immigration, net zero, and public spending too.
A zero-sum thinker will argue that trade only brings benefits at the cost of domestic producers and workers displaced by cheaper imports. They will also claim that immigration might boost growth, but at the expense of higher unemployment and falling wages.
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Economics can counter these zero-sum arguments. It is entirely possible, for example, to ensure that workers in import-competing industries benefit from international trade through the redistribution of national gains; to implement policies so that immigration boosts productivity and benefits all; and to design progressive fiscal policies that do not hamper growth but still achieve greater equality.
Far from providing solutions, zero-sum thinking can make things worse. Complex long-term challenges, like climate change, can become impossible to solve in a zero-sum world with an increasingly divided electorate.
The challenge, of course, is that the solutions are not straightforward. Economic theory might be a good guide, but the multiple effects, including gains and losses, are complex, messy, and difficult to track over time.
A key lesson for policymakers is that to counter zero-sum thinking, we need to avoid single, de-coupled policy debates. The way in which debates are framed, discussed, and trade-offs understood will be critical in guarding against zero-sum thinking dominating economic policy debates and widening division.
Adam Smith warned against "speculative physicians" with simple answers to complex problems. That warning is just as relevant today as it was in the 18th century.
Graeme Roy is professor of economics at the University of Glasgow’s Adam Smith Business School.
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