International Monetary Fund chief Christine Lagarde is warning political leaders that
International Monetary Fund (IMF) chief Christine Lagarde is warning political leaders that "trade tensions, frictions and threats" could inflict long-term damage on investment and the global economy. PIX: Ryan Rayburn /International Monetary Fund/dpa

International Monetary Fund chief Christine Lagarde is warning political leaders that “trade tensions, frictions and threats” could inflict long-term damage on investment and the global economy.

Amid retaliatory tariffs and other barriers being erected between the United States and China, Lagarde said Thursday that trade disagreements are “better resolved in a multilateral way.”

The Washington-based crisis lending agency this week forecast that global growth for 2018-19 will be stable at an annual rate of 3.9 per cent, the fastest expansion in eight years.

“Momentum continues to gather behind a broad-based upswing, aided by a rebound in global trade and investment,” Lagarde said. “Escalating trade conflicts could threaten that momentum.”

The US in March announced new tariffs on imports of steel and aluminium from most countries.

Lagarde cautioned that “unilateral trade restrictions have not been helpful, and we suspect that they might even dent confidence.”

The recent trade tiffs come amid faster growth in global trade. The immediate impact of current trade issues on gross domestic product will likely be small, Lagarde noted, citing the IMF’s own economic modelling.

“We are talking about decimals in most cases. What is more important is something that is difficult to measure in the short term, and that has to do with erosion of confidence,” she said.

“When investors do not know under what terms they will be trading, when they do not know how to organize their supply chain, they are reluctant on investing.”

The IMF’s own projection is for the rate of growth in global trade, including both goods and services, to pick up from 4.9 per cent last year to 5.1 per cent in 2018, before slowing a bit to 4.7 per cent next year.

“Growth is currently being driven by more investment than we had seen in the previous years – and more trade,” Lagarde said. “So why damage those?”

Amid US President Donald Trump’s “America First” policies, trade tensions are rising well beyond the relationship between Washington and Beijing.

Immediately after taking office in January 2017, Trump pulled the US out of the 12-country Trans-Pacific Partnership (TPP), and has forced talks on Mexico and Canada to revise the 24-year-old North American Free Trade Agreement.

Trump this month raised the possibility of negotiating a US re-entry to the TPP deal, in which China was not a participant.

“I don’t want to go back into TPP, but if they offered us a deal I can’t refuse on behalf of the United States, I would do it,” he said Wednesday in Florida during a joint press conference with Japanese Prime Minister Shinzo Abe at Trump’s private resort.

German Finance Minister Olaf Scholz, in Washington to attend the spring meetings of the IMF and its sister development agency, the World Bank, was scheduled to meet Thursday with US Vice President Mike Pence, with trade on the agenda.

A trade war “would not be something that would affect two countries, because the world is so interconnected,” Lagarde said.

“The supply chains are involving so many different countries, regional, intraregional, interregional, that it would affect the global economy.” -DPA

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