The IMF has warned that the trade policies imposed by Trump’s administration have the potential of not only hurting the US economy but also the world’s trade system. IMF’s director, Christine Lagarde says that a trade war could cause losses on both sides and attract serious consequences. The caution comes as the US prepares to levy new tariffs on Chinese imports worth $50bn.
The new duties that were announced in March on foreign steel and aluminum have already been implemented. The tariffs have necessitated Europe, Mexico, Canada and China to retaliate in firm of announcing plans to serve as counter-measures.
Ms Lagarde also raises concerns on how the trade war will affect sentiment. The IMF anticipates that the dispute will have minimal economic impact including slowing the GDP by a fraction of a percentage point. The IMF director further states that the most critical and difficult issue currently are the impacts on confidence.
The IMF has also stated that the White house has issued threats on its withdrawal from the North American Free Trade Agreement (Nafta). The trade wars are likely to shift the globe from an open, fair and trade system based on rules and may cause severe impacts on the US economy and its trading partners as well.
In its annual review of the US economy, the IMF explained the risks as well as the growth projections of the US economy. The institution projects a US growth of 2.9 percent this year with a tax cut package of $1.5tn and a $300bn rise in federal spending. Nevertheless, the organization expects a slowdown in the GDP to 2.7 percent in 2019 and 1.9 percent in 2020 and getting lower as the effects of the tax cuts diminish.
There has been contesting of the predictions by the US Treasury Department arguing that the White house policies which include tax reform as well as deregulation will ensure sustainable economic growth. The US has also said that it appreciates the IMF’s report and agrees with the report on the short-term predictions of the US economic growth but they differ significantly on both the medium and long-term forecasts.
The IMF director also said that she is concerned about the increasing public debt and the risk of an impending inflation. The IMF has thus called on the US to consider tax relief on low income households while also strengthening the financial oversight of non-banks.
The IMF also raised concerns on the dominance of small but increasing firms which have the potential of depressing wage growth and research investment as the gain market power.