Growing Trade Fears Has Sweden Singing Praise of Welfare State

(Bloomberg) -- The potential for a deepening trade dispute between the U.S. and Europe has Sweden’s prime minister highlighting the need for a strong welfare state as he seeks to avoid election defeat in September.

Growing turmoil will add to challenges for Stefan Lofven, whose Social Democratic Party is sliding in the opinion polls ahead of September’s election. The premier on Wednesday upped the stakes, saying the vote will be a “referendum” on the Swedish welfare state.

In response to Bloomberg questions after a debate in parliament in Stockholm on Wednesday, Lofven said that a strong welfare state will be needed even more should trade break down.

“I don’t want to experience a situation again like in 2008-2009 when tens of thousands of industry jobs disappeared unnecessarily,” he said. “We need a strong society that makes sure to protect companies and wage earners.”

A small, open economy, Sweden has been one of the main beneficiaries of increased global trade over the past decades and derives about 45 percent of its output from exports. It’s home to global manufacturing power-houses such as ball-bearing maker SKF AB and Atlas Copco AB, as well as the now Chinese owned Volvo Cars.

While the largest Nordic economy is so far little affected by new steel and aluminum tariffs imposed by U.S. President Donald Trump, threats to slap new barriers on car imports is raising alarm bells in Sweden.

“U.S. steel imports is one thing, that’s of some importance to Sweden, but when it comes to cars it would have 4-5 times more of an effect on Sweden’s economy,” Lofven said. “If we had that kind of scenario, we’d have difficult times ahead of us.”

Read more on Swedish election here:
Skidding Swedish Government Is a Victim of Its Economic Success
Nationalist Rise Has Sweden Headed for Gridlock After Election

Sweden has some legs to stand on, with employment at record highs and government debt at the lowest in four decades. But with the krona hovering near a record low against the euro and interest rates deep below zero, important shock-absorbers may be gone.

©2018 Bloomberg L.P.

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