Trade war could cost global economy $500bn warns IMF

17 Jul 18

Rising trade tensions between the US and the rest of the world could cost the global economy hundreds of billions of dollars, the International Monetary Fund has warned.

Unveiling the Washington-based fund’s latest outlook yesterday, IMF economic counsellor Maury Obstfeld warned that hostile tariffs imposed by the US have started a trade war that could wipe nearly $500bn off global growth by 2020.

While the global economy is estimated to grow at 3.9% this year and next – the highest rate since 2011 – the unfolding trade war posed the “greatest near-term threat to global growth” and risked lowering it by as much as 0.5% by 2020.

The organisation projects global GDP to be around $100 trillion in 2020.

“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,” Obstfeld told a news conference.

The US could find itself “as the focus of global retaliation”, with a relatively higher share of tariffs imposed, and is therefore “especially vulnerable”, Obstfeld said.

Earlier this year, the head of the IMF Christine Lagarde warned that the US was threatening the global economic system.

Global trade tensions were sparked by a US announcement in March that it would target steel and aluminium, and in June it imposed import tariffs of 25% on steel and 10% on aluminium.

Other nations have retaliated against the US and imposed tariffs on US imports as a countermeasure.

The EU imposed duties of £2.4bn on products, such as bourbon whiskey, motorcycles and orange juice, which took effect on 22 June.

Canada also announced it would impose tariffs on imports of US metal products and other items, such as yoghurt, coffee and water.

The World Economic Outlook report also said that although economic growth remains strong, it is becoming “less even, and the risks to the outlook are mounting”.

Obstfeld also highlighted uncertainty around Brexit, as the date of the UK’s departure from the European Union nears.

He said: “Financial markets seem broadly complacent in the face of the contingencies, with elevated valuations and compressed spreads in many countries.”

The IMF cut its 2018 growth forecasts for the eurozone, Japan and Britain due to a softer-than-expected first quarter performance and tighter financial conditions as a result of political uncertainty.

The eurozone’s growth forecast was cut to 2.2% from 2.4%, Britain’s growth was cut to 1.4% from 1.6%. and Japan’s growth was cut to 1.0% from 1.2%.

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