WASHINGTON: The IMF sounded the alarm on Thursday about the escalating US-China trade war, warning it will “jeopardise” 2019 global growth, undermine confidence and raise prices for consumers.
Gita Gopinath, the International Monetary Fund’s chief economist, directly refuted President Donald Trump’s claim that tariffs are paid by China and provide a windfall for the US treasury, and that his aggressive posture will help reduce the US trade deficit.
She and her co-authors warned in a blog post that the economic damage will be even worse if Trump goes through with the threat to impose steep tariffs on all goods imported from China, as that “will subtract about one-third of a percentage point of global GDP in the short term.” Optimism was high earlier this month that a deal was within striking distance but tensions erupted after Trump accused Beijing of backtracking on its commitments made over the year of negotiations.
He then more than doubled tariffs on $200 billion in Chinese goods to 25pc and threatened to hit the remaining $300bn in products imported each year with duties at the same level.
“Consumers in the US and China are unequivocally the losers from trade tensions,” Gopinath stated, noting that the “tariff revenue collected has been borne almost entirely by US importers.” IMF chief Christine Lagarde and other fund officials have repeatedly raised concerns about the trade war but the blog post quantified the realised and expected damage, presenting the case with greater urgency.
Trump says a primary goal of the aggressive tariff strategy is to reduce the trade imbalance with China, which totaled $379bn last year.
But Gopinath argues that while the tensions have damaged both countries, reducing overall trade and hurting companies, “the bilateral trade deficit remains broadly unchanged.”
Meanwhile, total US imports have not changed significantly since importers simply shifted their purchases to other countries.