IMF warns world to avoid global trade war
Trump says he plans to introduce a universal tax or tariff of up to 20% on all imports into the US, while the European Union is already planning retaliation if Washington goes ahead with the new levy.
A broad-based trade war among major global economies could shrink the world economy by an amount equivalent to the combined economies of France and Germany, the International Monetary Fund (IMF) has warned in an interview with the BBC.
This warning follows growing concerns about a potential re-election of Donald Trump, who has announced plans to impose a universal tax or tariff of up to 20% on all imports into the U.S. In response, the European Union is preparing retaliatory measures if the U.S. moves forward with the new tariff.
Last week, Trump referred to tariffs as “the most beautiful word in the dictionary,” raising alarm among global markets and finance ministers about the possibility of him implementing these policies.
Gita Gopinath, the IMF’s first deputy managing director, stated that while the Fund has not yet analyzed the specifics of Trump’s proposals, the impact of widespread tariffs could be severe. “If you have some very serious decoupling and broad-scale use of tariffs, you could end up with a loss to world GDP of close to 7%,” she said.
Gopinath explained the potential economic fallout, noting, “7% is basically losing the French and German economies. That’s the size of the loss that would be.”
She added that imposing tariffs on such a massive scale “is very different from the world we’ve lived in over the past two or three decades.”
At the IMF’s Annual Meetings, Gopinath also highlighted the risks posed by rising global government debt. With steady economic growth currently in place, she emphasized that now is the time to “rebuild your fiscal buffers” in preparation for future challenges.
“This will not be the last crisis,” she warned. “There will be additional shocks. You will need the fiscal space to respond. And now is the time to do it.”
Despite the risks, Gopinath urged a focus on the positives, noting the resilience of the global economy following recent challenges. “We’ve had a soft landing from multiple crises,” she said.
“Past experiences with bringing down inflation didn’t involve a soft landing. It was marked by big increases in unemployment,” she explained. “This time, it has turned out much better than many feared.”
Gopinath praised central banks for successfully reducing inflation without triggering high unemployment. However, she cautioned that “now is the time to rebuild resilience in a fragile world.”
