IMF warns of rising trade barriers
The global economy is approaching a soft landing after several years of geopolitical and economic turmoil, the International Monetary Fund said Tuesday. But it warned that risks remain, including stubborn inflation, the threat of escalating global conflicts, and rising protectionism.
In its latest World Economic Outlook report, the IMF projected global output to hold steady at 3.2 percent in 2024, unchanged from 2023. Although the pace of the expansion is tepid by historical standards, the IMF said global economic activity had been surprisingly resilient given that central banks aggressively raised interest rates to tame inflation and wars in Ukraine and the Middle East further disrupt supply chains.
The forecasts came as policymakers from around the world began arriving in Washington for the spring meetings of the International Monetary Fund and the World Bank. The outlook is brighter from just a year ago, when the IMF was warning of underlying “turbulence” and a multitude of risks.
Although the world economy has proved to be durable over the past year, defying predictions of a recession, there are lingering concerns that price pressures have not been sufficiently contained and that new trade barriers will be erected amid anxiety over a recent surge of cheap Chinese exports.
“Somewhat worryingly, progress toward inflation targets has somewhat stalled since the beginning of the year,” Pierre-Olivier Gourinchas, the IMF’s chief economist, wrote in an essay that accompanied the report. “Oil prices have been rising recently in part due to geopolitical tensions and services inflation remains stubbornly high.”
He added: “Further trade restrictions on Chinese exports could also push up goods inflation.”
The gathering is taking place at a time of growing tension between the United States and China over a surge of Chinese green energy products, such as electric vehicles, lithium batteries, and solar panels, that are flooding global markets. Treasury Secretary Janet Yellen returned last week from a trip to China, where she told her counterparts that Beijing’s industrial policy was harming American workers. She warned that the United States could pursue trade restrictions to protect investments in America’s solar and electric vehicle industries.
The United States and China agreed to hold additional talks on “balanced growth.” On Tuesday afternoon, Yellen convened a meeting of the US-China Financial Working Group and the Economic Working Group at the Treasury Department.
During her visit to China, Yellen suggested that tariffs on Chinese exports of green energy products were “on the table.” The Biden administration is weighing changes to tariffs that the Trump administration imposed on more than $300 billion worth of Chinese goods. The European Union has been pursuing its own trade restrictions on China, and fears over China’s growing dominance over clean energy production could lead to a new wave of protectionism globally.
On Tuesday, Yellen pointed out that the US economy was defying expectations of weakness from a year ago, describing the labor market as “remarkably healthy” and noting that inflation had come down significantly from its peak.
IMF officials have been wary about “fragmentation” in recent years, as economies gravitate to trading blocs with aligned political interests. The report Tuesday warned that further restrictions on trade and investment could fuel more inflation and weigh on economies.
“Tariff increases could trigger retaliatory responses, raise costs, and harm both business profitability and consumer well-being,” the report said.
Yellen said on Tuesday that the IMF is not sufficiently focused on the problem of Chinese overcapacity, arguing that China’s subsidies of its green energy sectors were creating an uneven playing field.
“With these subsidies, the amount of capacity exceeds global demand, and what it’s likely to be even over the next decade,” Yellen said. “When the markets weaken, prices fall and it’s our firms who go out of business, and those that are our allied countries. Chinese firms continue to receive support so that they remain.”