Finance chiefs issue warning as trade tensions deepen
Global finance chiefs warned that tensions over trade and rising interest rates threaten to turn the world economy into a battleground just as global growth peaks.
A year since they toasted the most synchronized expansion in years, policy makers at the IMF’s annual meeting fretted this week that the upswing may come apart as governments turn inward and the Federal Reserve creates ripples by tightening monetary policy.
As scenes from the medieval fantasy TV series “Game of Thrones” played on giant screens above him, Indonesian President Joko Widodo on Friday proclaimed “Winter is coming” — a line from the series underscoring the need for constant vigilance against external threats.
“When victory and defeat have been achieved, will we wake up to a world that is shattered?” Widodo asked in Bali, Indonesia, where finance ministers and central bankers from the fund’s 189 member nations are meeting. “It will be an empty prize, to become the most successful economy in a drowning world.”
Following the global financial crisis a decade ago, the world’s major economies banded together to calm markets and restore growth. But their leaders are now struggling to find common ground, with a trade dispute between the U.S. and China showing little sign of ending soon and emerging markets struggling to cope with a reversal in capital flows.
Tumbling stock markets underscored the fraying consensus, though signs of calm were returning Friday as most Asian stocks recovered and U.S. equities appeared set to rise.
Against that backdrop, policy makers and economists — many of whom had their sleep disturbed early Thursday when a magnitude 6.4 earthquake struck off the resort island’s coast — urged the U.S. and China to step back from the brink before their trade war takes a meaningful bite out of global growth.
The sell-off this week shows the market is “digesting” the prospect of higher U.S. interest rates as well as escalating trade tensions, Australian Finance Minister Josh Frydenberg said in an interview with Bloomberg TV. But he said the global economy remains strong, and there has yet to be a “large macroeconomic impact” from the trade dispute.
“We need to see cooler heads prevail,” Frydenberg said. “We don’t want to see an escalation in some of the trade tensions between the United States and China. And we want to see the WTO as the preeminent forum for resolving trade disputes.”
British Chancellor of the Exchequer Philip Hammond said there continues to be “very real concerns” about the global economy, mostly due to trade friction between the U.S. and China.
The U.K. is encouraging China to open its economy to “head off some of the underlying causes of U.S. concern,” while urging the Trump administration to approach the conflict “in a way that maximizes the chances of resolution,” Hammond told reporters in Bali.
Bloomberg News reported the U.S. Treasury Department’s staff has advised Secretary Steven Mnuchin that China isn’t manipulating the yuan as the Trump administration prepares to issue a report on foreign currencies. The conclusion, if accepted by Mnuchin, would avert an escalation of the U.S.-China trade war.