IMF warns that US and global economies are vulnerable to growing damage from trade war

Anca Alexe 17/07/2018 | 08:00

The International Monetary Fund warned on Monday that escalating and sustained trade conflicts following US tariff actions threaten to derail economic recovery and depress medium-term growth prospects, Reuters writes.

The IMF says that Donald Trump’s tariff threats and subsequent retaliation from trading partners could reduce annual global economic output by 0.5 percent for 2020, meaning nearly USD 500 billion lost in annual output, the equivalent of 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 Maury Obstfeld told a news conference, adding that U.S. trade deficits are likely to grow due to high demand, possibly inflaming trade tensions further.

“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 maintains its global economic growth forecasts at 3.9 percent for both 2018 and 2019, but these projections only take into account tariffs currently in force, so larger actions such as possible automotive tariffs are not included. Forecasts for the United States and China were both unchanged, with U.S. growth pegged at 2.9 percent in 2018 and 2.7 percent in 2019. China’s growth was forecast at 6.6 percent in 2018 and 6.4 percent in 2019.

However, the fund has 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.

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