The International Monetary Fund warned that the tariffs proposed by Donald Trump, the US presidential candidate, could harm global growth and upgraded its forecasts for the UK’s economy.
The Washington-based organization said that tariffs can trigger tit for tat trade wars, which impoverish economies in dispute as well as the global economy.
The report said that the number of countries implementing trade-distorting policies has increased dramatically over the past five years. From 1,000 in 2019 to more than 3,000 in 2019, a new round of tariffs will cause further damage.
Pierre-Olivier Gourinchas is the IMF chief economist. He said that “there’s definitely a direction that we are concerned about.” This could be because many of these trade-distorting policies are driven by self-interested countries. They could also harm the global economy, as well as the countries that implement them.
He said: “The impact of tariffs on global trade makes residents in a country poorer.”
IMF forecasts growth of 3.2% in the world economy for this year and the next, but stated on Tuesday that increased tariffs on “a large swath of” world trade by mid-next year could reduce output by 0.8% in 2025 and 1.3% in 2020.
Trump, as he prepares to run for office in the US on November 5, has announced plans to impose significant duties on imported goods. This policy is likely to lead to a series tit-forta-tat actions. China is likely to be Trump’s main target. However, goods from the European Union may also be on his radar.
Bloomberg reported that Christine Lagarde is the President of the European Central Bank. She said the US has historically prospered when there was trade and not “I am going to retire behind the boundaries of my country and play at home”.
Janet Yellen warned that broad tariffs would be a “misguided” approach and have a negative effect on export industries and consumers.
In its bi-annual Economic Outlook, the IMF stated that the UK would be one of the countries growing faster than expected this year. This gives Rachel Reeves a boost ahead of her first budget, which is next week.
The UK’s growth is now expected to reach 1.1% in 2024, up from the 0.7% projected in July. The IMF forecast of 1.5% growth for next year remained unchanged.
Reeves has put economic growth at the heart of Labour’s five-year plan. He will be joining finance ministers and central banks governors in Washington, DC on Thursday for the annual IMF meeting.
IMF stated that countries such as UK, which rely on the sale of services, have grown strongly in this year. They left behind nations like Germany who are more dependent on selling manufactured products.
IMF predicted that UK growth will increase to 1.5% by 2025 as interest rates and inflation fall. Reeves stated: “It is welcome that the IMF has upgraded our growth projection for this year but I know that there is still more work to be done.” The budget will focus on fixing the foundations for change so that we can protect the working people, fix our NHS, and rebuild Britain.
Italy is behind with a 0.7% growth rate, Japan has a 0.3% growth and struggling Germany has zero growth. Gourinchas stated that Europe is on a steady path of improvement, but the growth rate remains lower than it was in the years leading up to 2008’s financial crash. They warned that, in trying to reduce debt levels while increasing public investment, countries like the UK are treading on a “narrow road”.
Gourinchas, without commenting on the budget next week, said that when countries had high debt levels, high interest rates, and growth that was “OK, but not great”, it is possible that “things” could quickly escalate.
Gourinchas stated that the global economy remained “unusually resilient” throughout the disinflationary processes of the past two years, when central banks increased borrowing costs to calm spiralling price increases.
He said that the monetary policy had played a crucial role in keeping inflation expectations anchored and avoiding wage-price spirals. This prevented a repetition of the disastrous inflation of the 1970s.
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