IMF Warns U.S. Trade War With China Threatens Global Growth

Christine Lagarde, Managing Director of the International Monetary Fund (IMF), said what almost every economist already knows. At the Group of 20 meeting of Finance Ministers and Central Bank Governors, she said that threats which would ripple from a trade war could damage the global economy to the tune of $455 billion next year, a figure the IMF has already posted.

The trade war effects were not the end of her warning, “A second risk is that, with interest rates very low, debt levels are rising in many advanced economies, and emerging markets remain vulnerable to a sudden shift in financial conditions. And all this at a moment when monetary and fiscal policy space is more limited than in the past.” As for the fiscal policy problem, many central banks have already cut interest rates and bought fixed income securities to help GDP growth in their own nations. Most do not have much “powder left” as the term goes.

Her please were that existing tariffs be elimiated and new ones be avoided. Monetary policy should not only be rate driven and sovereigh debt purcahse driven. “At the same time, in most countries, monetary policy should continue to be data dependent and accommodative. Fiscal policy should carefully balance growth, debt, and social objectives. And structural reforms—from opening up markets to encouraging greater participation by women in the workforce—should be used to lay the foundation for stronger and more inclusive growth. If these kinds of measures were jointly implemented, the IMF estimates that they could boost the G20’s GDP level by 4 percent over the long term.”

Protecing GDP growth has become a balancing act. However, no matter how much nations accomodate the IMF directions, the trade war can knock all of it off kilter.