IMF: US tariffs could undermine global trade


Director of IMF Christine Lagarde, attends a press conference in Berlin, Germany, 11 June 2018.Image copyright
EPA

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IMF head Christine Lagarde has already warned that the US and China trade row threatens global confidence and investment

The Trump administration’s trade policies are likely to hurt the US economy and undermine the world’s trade system, the IMF has warned.

The organisation outlined the risks in its annual review of the US economy.

The caution comes as the US prepares to levy new tariffs on $50bn worth of Chinese imports.

New duties on foreign steel and aluminium, announced in March, have already gone into effect.

The IMF said the White House, which has also threatened to withdraw from the North American Free Trade Agreement (Nafta), is responding to rising concerns about the side-effects of free trade.

“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,” it said.

Tariffs and limits on imports are likely to disrupt supply chains, discourage business investment and trigger retaliation, the IMF said.

Europe, Mexico, Canada and China are among the countries that have introduced or are planning counter-measures in response to the steel and aluminium tariffs.

Economic outlook

Despite the concerns about trade, the IMF said the outlook for the US economy is bright in the near-term.

It forecasts growth of 2.9% this year, as the Trump administration’s $1.5tn tax cut package and $300bn increase in federal spending temporarily boost activity.

However, it said the policies are also fuelling public debt and risk inducing a sudden bout of inflation.

“Despite good near-term prospects, a number of vulnerabilities are being built-up,” the IMF said.

US growth is expected to slow to 2.7% in 2019 and 1.9% in 2020, trending lower as the decade continues.

The IMF called on the US to target tax relief at lower income households and strengthen financial oversight of non-banks.

It also sounded an alarm about the dominance of a small but growing number “superstar” firms. It said those firms have the potential to depress wage growth and investment in research and development as they accrue market power.



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