Protectionism may come to hurt Asia, says IMF

TOKYO: Protectionist sentiment has not yet gone beyond mere words, said International Monetary Fund managing director Christine Lagarde yesterday, but would hurt Asian economies with open and free markets if it did.

Lagarde brushed off the concerns of some investors that the divergent monetary paths of major central banks could disrupt Asian capital flows, stressing that policymakers had the tools and means of communication needed to prevent market upheaval.

Global policymakers have raised concerns over United States President Donald Trump’s “America First” agenda, which aims to slash US trade deficits, via which Washington appears to be walking away from or extensively renegotiating multilateral trade arrangements in favour of country-by-country deals.

Lagarde said that while protectionism had not so far been seen “other than in words”, trade deals must be improved in a way that included people who felt left behind by globalisation.

“If there was protectionism, it would hurt economies that are very open, and based on free and fair movement of goods and services,” said Lagarde during a visit for the 20th anniversary of the IMF’s Asia-Pacific regional office here.

“To continue to have trade as a global engine for growth, trade deals need to be improved,” she said, adding trade pacts had to include rules on labour practices and intellectual property.

Lagarde said trade deals must be “rules based” and make use of existing dispute-settlement mechanisms, such as the World Trade Organisation.

The IMF head said there had been no massive capital outflows from Asia thanks to central bankers’ cautious approach and clear communication around their policy shifts.

“We believe these conditions can help ensure that monetary policy changes do not provoke unnecessary capital flow movements,” she said.

Lagarde said she would draw a “slight distinction” between the pace of policy shifts to be adopted by the US Federal Reserve (Fed) and European Central Bank (ECB).

She noted that the Fed was expected to raise interest rates steadily in coming months, while the ECB had stressed that its quantitative easing would continue and that its interest rates would remain low for a long period of time. Reuters

If there was protectionism, it would hurt economies that are very open, and based on free and fair movement of goods and services. To continue to have trade as a global engine for growth, trade deals need to be improved.

CHRISTINE LAGARDE

IMF managing director