IMF warns of growing damage from trade fight, says US vulnerable
WASHINGTON: Escalating and sustained trade conflicts following US tariff actions threaten to derail economic recovery and depress medium-term growth prospects, the International Monetary Fund warned.
Sketching out potential damage from the full brunt of US President Donald Trump’s tariff threats and subsequent retaliation from trading partners, the IMF said that if realized, these could reduce annual global economic output by 0.5 per cent from projections for 2020.
That translates to nearly US$500 billion in lost annual output based on IMF projections, the equivalent of subtracting an economy the size of Thailand.
“The risk that current trade tensions escalate further with adverse effects on confidence, asset prices and investment is the greatest near-term risk to global growth,” IMF chief economist Maurice Obstfeld told a news conference, noting that US trade deficits are likely to grow due to high demand, possibly inflaming trade tensions further.
The reduction in output takes into account active US global tariffs on steel and aluminium, as well as an initial US$34 billion in Chinese goods, along with retaliatory measures.
Other threatened actions, which include another round of tariffs on an additional US$200 billion in Chinese goods and a 25 per cent US global tariff on car imports now under study, are also included.
“As the focus of global retaliation, the United States finds a relatively high share of its exports taxed in global markets in such a broader trade conflict, and it is therefore especially vulnerable,” Obstfeld added.
The IMF left unchanged its global economic growth forecasts at 3.9 per cent for both 2018 and 2019, compared to its previous forecast issued in April.
Obstfeld said these projections only take into account tariffs currently in force, so larger actions such as possible automotive tariffs were not included.
Still, he said that growth momentum was slowing. While the IMF in April rounded down growth projections to reach the 3.9 per cent forecast, for the July update, the numbers were rounded up slightly to reach that same level.
Forecasts for the United States and China were both unchanged, with US growth pegged at 2.9 per cent in 2018 and 2.7 per cent in 2019.
China’s growth was forecast at 6.6 per cent in 2018 and 6.4 per cent in 2019.
But the fund cut its 2018 growth forecasts for euro zone countries and for Japan and Britain, citing a softer-than-expected first-quarter performance coupled with tighter financial conditions partly due to political uncertainty. — Reuters