In a stark warning, the International Monetary Fund (IMF) has cautioned that the trade tariffs championed by US presidential candidate Donald Trump could deal a blow to the global economy. The Washington-based institution noted that such measures often trigger retaliatory trade wars that impoverish not only the nations involved but also the broader worldwide economic landscape.
A Concerning Trend in Trade Barriers
Pierre-Olivier Gourinchas, the IMF’s chief economist, expressed grave concern over the sharp increase in trade-distorting measures implemented by countries in recent years. The number of such barriers has skyrocketed from 1,000 in 2019 to a staggering 3,000 today. Gourinchas warned that a fresh round of tariffs could inflict further damage, emphasizing:
“The impact on global trade also makes the residents of a country [implementing tariffs] poorer.”
– Pierre-Olivier Gourinchas, IMF Chief Economist
The IMF’s current growth forecast for the world economy stands at 3.2% for both this year and the next. However, the organization cautioned that higher tariffs on a significant portion of global trade by mid-2025 could shave 0.8% off output that year and a hefty 1.3% in 2026.
Trump’s Tariff Plans Raise Eyebrows
As the US gears up for the November 5th election, Trump has outlined his intentions to levy substantial tariffs on imported goods – a policy that is expected to provoke a series of retaliatory measures. While China is anticipated to be his primary target, goods from the European Union may also find themselves in the crosshairs.
Prominent figures like Christine Lagarde, president of the European Central Bank, and Janet Yellen, the US Treasury secretary, have voiced their apprehensions about the potential fallout from such an approach. Lagarde noted that historically, the US has thrived during eras of trade rather than isolationism, while Yellen labeled broad tariffs a “misguided approach” that would negatively impact consumers and export industries alike.
A Silver Lining for the UK Economy
Amidst the concerns over global trade, the IMF delivered some welcome news for the UK economy. In a significant upward revision, the organization now expects the UK to grow by 1.1% this year – a notable increase from the 0.7% projected in July. The forecast for 1.5% growth in 2025 remains unchanged.
This development provides a boost to UK Chancellor Rachel Reeves ahead of her first budget next week. Economic growth has been a central pillar of Labour’s plans for the coming five years. The IMF attributed the UK’s stronger performance to its service-oriented economy, which has outpaced manufacturing-dependent nations like Germany.
“It’s welcome that the IMF have upgraded our growth forecast for this year, but I know there is more work to do.”
– Rachel Reeves, UK Chancellor
Navigating a Narrow Path
While the IMF’s outlook for the UK is positive, Gourinchas stressed that countries like Britain are treading a “narrow path” as they attempt to reduce debt levels while simultaneously increasing public investment. He cautioned that when nations have elevated debt, high interest rates, and modest growth, there is a risk that “things could escalate or get out of control quickly.”
As the global economy navigates the challenges posed by trade tensions and shifting growth dynamics, the IMF’s insights serve as a timely reminder of the delicate balance that must be struck. The upcoming US election and the policy decisions that follow will undoubtedly shape the trajectory of international trade and economic prosperity in the years to come.
