A warning from the International Monetary Fund said that the world’s trade system would be undermined and the U.S. economy could be hurt by the trade policies of the Trump administration.
A trade war would result in “losers on both sides” and can present a “serious” impact, said IMF Director Christine Lagarde.
This caution was timed with the announcement of imposition of trade tariffs worth $50 billion on Chinese products by the Trump administration.
The import tariffs placed by the U.S. on steel and aluminium which was announced in March, have already been implemented.
Already, introduction or announcement of plans for counter-measures in retaliation to those tariffs have been made by U.S. trade4 partners Europe, Mexico, Canada and China.
There is concern about how the trade tensions would impact on sentiment, said Lagarde even though the IMF is anticipating very little impact of the tariffs on steel and aluminum on the global economy where GDP would be slowed by a fraction of a percentage point.
“What is more critical and more difficult to factor in at the moment … is the actual impact on confidence,” Lagarde said at a press conference in Washington.
The White House is reacting to increasing concerns about the side-effects of free trade. the IMF said. Trump has already threatened to withdraw from the North American Free Trade Agreement (Nafta).
“These measures, though, are likely to move the globe further away from an open, fair and rules-based trade system, with adverse effects for both the US economy and for trading partners,” the IMF said.
The risks were outlined in the annual review of the US economy by the IMF. It anticipated a bright near-term outlook for the U.S. economy.
Economic activity in the U.S. would be temporarily boosted by the Trump administration’s $1.5 trillion worth of tax cuts and the $300 billion enhancement in government spending, opined the IMF and forecast a US growth rate of 2.9% this year.
But as the decade continues and the impacts of the tax cuts fade away, the IMF expects the U.S. economy to slow down. The organization predicts GDP growth rates for the economy at 2.7% in 2019 and 1.9% in 2020.
Those forecast by the IMF were refuted in a statement by the US Treasury Department saying that the policies undertaken by the White House – which includes the de-regulation and tax reform, would provide “more sustainable economic growth”.
“While we appreciate the IMF’s work on their report and share similar short term forecasts on US economic growth, we differ significantly on the medium and long term projections,” the US said.
While hoping that the predictions of Treasury Secretary Steven Mnuchin to be correct, Lagarde said that she is concerned about the increasing public debt and the impact of a sudden fit of inflation.
“Despite good near-term prospects, a number of vulnerabilities are being built-up,” the IMF said.
(Adapted from BBC.com)