A trade war between the US and China is escalating. IMF chief Christine Lagarde therefore fears of danger for global economic activity. “Dark clouds” looming.
Christine Lagarde, chief of the International Monetary Fund (IMF), warned of a drastic cyclical downturn speaking to an audience at the University of Hongkong. “’Dark clouds’ would be looming over the global economy, for instance by the commercial quarrel beaconed by US President Donald Trump,…I have been calling on all governments to use the current growth momentum for much-needed policy actions and reforms, especially in labor markets and service sectors.”, Lagarde said.
Even though she expressed herself optimistic about the global growth for the years 2018 and 2019 due to “strong investment, a rebound in trade and favorable conditions” the growth for the following years is predicted to decelerate. A reason for this, among others, is the fading fiscal stimulus, including in the U.S. and China.
After U.S. President Donald Trump signed a new bill increasing the punitive tariffs on steel and aluminum imports in March 2018, the world economy was shocked. While Canada and Mexico are excluded from the tariffs due to the North American Free Trade Agreement (NAFTA) and also the EU is in negotiation about the tariffs, China remains the one heavily affected partner.
In response China announce increased tariffs on goods from the U.S. including, cotton, soya beans and smaller planes. Ever since the Chinese president Xi Jinping and Trump keep threatening each other with new tariffs amounting up to US$100 billion.
This rival behavior instead of collaborative is the reason for the predicted deceleration according to Lagarde, who pointed out that “History shows that import restrictions hurt everyone, especially poorer consumers”. It would increase product prices, limit choices and prevent trade from boosting productivity. “Steer clear of protectionism” she adviced.
After pointing out her other two advices in how world trade should change to prevent the deceleration – guard against fiscal and financial risks; foster long-term growth that benefits everyone – she came to the conclusion that, it is up to the policymakers to be the change. “They can simply copy the policies of the past, which have delivered mixed results—raising living standards substantially, but leaving too many behind.
Or they can paint a new economic landscape—where open trade is fairer and more collaborative; where financial systems are safer and more supportive of economic growth; and where the digital revolution benefits not just the fortunate few but all people. ”
By Sophie Zoe Schreiber