Trade wars pose risk of ‘self-inflicted’ economic wound: IMF
economists expect global growth to decelerate from 3.6 per cent last year to 3.3 per cent in 2019 — tied with 2016 as the weakest performance since the recession year 2009.
World trade is expected to expand just 3.4 per cent — a sharp slowdown from the 4 per cent the IMF had expected when its previous forecast in January and down from 3.8 per cent trade growth in 2018.
Earlier Thursday, newly installed World Bank President David Malpass said that the current slowdown is jeopardising the fight against extreme poverty, especially in subSaharan Africa. Extreme poverty refers to people who live on less than $1.90 a day.
Paul Sheard, senior fellow at the Mossavar-Rahmani Center for Business and Government at Harvard University’s Kennedy School, said the biggest worry isn’t the current health of the global economy. It’s the fear that world central banks won’t be able to respond effectively if conditions deteriorate. That’s because interest rates around the world are already so low there isn’t much room to cut them to give growth a jolt.
“Every policymakers’ nightmare is what would happen if the global economy went into a downturn soon,” said Sheard, who is attending the meetings.
Despite the gathering gloom, Lagarde noted that financial markets have rallied this year on optimism over “man-made solutions” to the global economy’s ailments. For one thing, the Federal Reserve has stopped raising US interest rates, after four hikes in 2018, to give the US economy time to gain strength.
For another, there is growing optimism that the Washington and Beijing will settle their trade differences. In fact, China said on Thursday that talks are “moving forward” after nine rounds of negotiations.
Auto tariff war
A new trade war sparked by US automotive tariffs has the potential to do much more damage to global economic growth than the US-China trade conflict has done, IMF chief economist Gita Gopinath said.
“We are concerned about what auto tariffs would do to the global economy at a time when we are more in the recovery phase,” Gopinath said on the sidelines of the IMF and World Bank annual meetings in Washington.Should trade conflicts spill over into the automotive sector, it would also disrupt larger parts of global manufacturing supply chains, she said.
“So that would actually be far more costly for the world economy than just the US-China trade tensions that we had,” said Gopinath, an Indian-born, Harvard University professor.
US President Donald Trump has threatened to levy tariffs of some 25 per cent on imported vehicles and auto parts on national security grounds, invoking a 1962 trade law aimed at safeguarding the Cold War-era military industrial base.