Trade war threatens global growth: IMF
NUSA DUA, Indonesia — International Monetary Fund Managing Director Christine Lagarde on Thursday warned countries of the perils of a trade or a currency war, saying they could be detrimental to global growth and hurt “innocent bystanders”.
Lagarde, at the outset of the World Bank’s annual meeting with the IMF, urged countries to “de-escalate” trade frictions and fix global trading rules, rather than abandon them.
“We certainly hope we don’t move in either direction of a trade war or a currency war. It will be detrimental on both accounts for all participants,” Lagarde told a news conference during the annual meetings of the IMF and World Bank on the Indonesian resort island of Bali.
“And there would also be lots of innocent bystanders.”
She also defended central bank rate hikes in a veiled rebuke to Donald Trump after the US president blamed “crazy” Fed policies for contributing to financial market turmoil. A global market sell-off rolled on following Trump’s comments.
Lagarde said central bank rate increases such as those by the policy-setting US Federal Reserve were justified by fundamentals.
“It is clearly a necessary development for those economies that are showing much improved growth, inflation that is picking up ... unemployment that is extremely low,” she said. “It’s inevitable that central banks make the decisions that they make.”
Following a sharp Wall Street sell-off on Wednesday, Trump said the Federal Reserve “is making a mistake”.
“I think the Fed has gone crazy,” he said.
In the shadow
Threats to growth and the trade that helps drive it are overshadowing the gathering of finance officials, central bankers and other leaders on Bali, a tropical tourist destination that reflects Indonesia’s own rapid development over the past three decades.
World Bank President Jim Yong Kim said escalating trade tensions between the US and China could undo global progress in helping end extreme poverty.
He joined Lagarde and others in warning of the risks to world growth and economic development from threats to world trade after the US imposed tariffs on tens of millions of dollars of Chinese exports and China responded with similar retaliatory taxes on imports of US goods.
“We’re very concerned about trade tensions,” Kim said. “Trade is very critical because that is what has lifted people out of extreme poverty.
“I am a globalist. That is my job. That is our only chance of ending extreme poverty. We need more trade not less trade.”
He said the World Bank was working with countries to prepare for a worsening situation because if tariffs were imposed to the most extreme limits there would be a “clear slowdown and the impact on the developing countries would be greater”.
Lagarde said she would advise Washington and Beijing to cool down.