IMF Warns US Tariffs Hurting Global Economy

The International Monetary Fund warned world economic leaders on Saturday that a recent wave of trade tariffs would significantly harm global growth, a day after US President Donald Trump threatened a major escalation in a dispute with China.

IMF Managing Director Christine Lagarde said she would present the G20 finance ministers and central bank governors meeting in Buenos Aires with a report detailing the impacts of the restrictions already announced on global trade, AFP reported.

“It certainly indicates the impact that it could have on gross domestic product, which in the worst case scenario under current measures...is in the range of 0.5% of GDP on a global basis,” Lagarde said at a joint news conference with Argentine Treasury Minister Nicolas Dujovne.

Her warning came shortly after the top US economic official, Treasury Minister Steven Mnuchin, told reporters in the Argentine capital there was no “macroeconomic” effect yet on the world’s largest economy.

Long-simmering trade tensions have burst into the open in recent months, with the United States and China—the world’s No. 2 economy—slapping tariffs on $34 billion worth of each other’s goods so far.

The weekend meeting in Buenos Aires comes amid a dramatic escalation in rhetoric on both sides. Trump on Friday threatened tariffs on all $500 billion of Chinese exports to the United States.

Mnuchin will try to rally G7 allies over the weekend to join it in more aggressive action against China, but they may be reluctant to cooperate because of US tariffs on steel and aluminum imports from the European Union and Canada, which prompted retaliatory measures .

The last G20 finance meeting in Buenos Aires in late March ended with no firm agreement by ministers on trade policy except for a commitment to “further dialogue.”

Trump Under Attack

Global economic leaders are pushing back against Trump’s latest rants on global trade and currencies, speaking out against higher tariffs while backing central bank independence.

Officials from Germany to Japan and South Africa at the Group of 20 meeting of finance ministers in Buenos Aires rejected Trump’s unilateral stance, while working to build consensus on a final communique that would avoid upsetting Washington. G20 members traditionally cap their meetings with a communique that summarizes key policy recommendations.

The US president’s fiery rhetoric is more than just a threat and has begun to impact the real economy, said South African Reserve Bank Deputy Governor Daniel Mminele.

“The mere talking about it, the ratcheting up of the rhetoric does affect confidence, does create uncertainty, and will already have influenced behavior even before the first shot was fired,” Mminele said in an interview in Buenos Aires.

French Finance Minister Bruno Le Maire said on Saturday the European Union could not consider negotiating a free trade agreement with the United States without Washington first withdrawing its tariffs on steel and aluminum.

Speaking to reporters, Le Maire said there was no disagreement between France and Germany over how and when to start trade talks with the United States. Both agreed Washington needs to take the first step by eliminating tariffs, he said.

In an interview with AFP, Le Maire said Europe as a whole was worried about being dragged into a global trade war. "This trade war will produce only losers, it will destroy jobs and put pressure on global growth,” he said.

"We call on the United States to see sense, to respect the rules of multilateralism and to respect their allies."

What concerns Le Maire the most is how supposed allies have ended up fighting over trade. "Americans and Europeans are allies, we cannot understand how we, Europeans, can be affected by US trade tariffs," he said.

"What we want is to reconstitute trade multilateralism. Global trade cannot be based on survival of the fittest.”

Le Maire said the only way to solve such issues was through dialogue between the US, EU and China, rather than an escalation of punitive measures.

But Mnuchin refused to budge on demands for concessions.

"My message is pretty clear, it's the same message the president delivered at the G7: if Europe believes in free trade, we're ready to sign a free trade agreement with no tariffs, no non-tariff barriers and no subsidies. It has to be all three," said Mnuchin at the summit.

Le Maire responded, “We refuse to negotiate with a gun to the head. It must be the US that takes the first step to deescalate.”

Germany’s Finance Minister Olaf Scholz was categorical in rejecting Trump’s claims that Europeans game their currency. “The European Union carries out very rational policies, which are not geared at artificially creating economic successes through currency levels," he told reporters.

And Bank of Japan Governor Haruhiko Kuroda didn’t share Trump’s frustration with rising US interest rates and a stronger dollar, saying they reflect a solid economy.

“For the US economy and the global economy, that is not a negative,” he said.

G-20 Draft Statement

Global economic growth is less synchronized and faces increasing threats, including from trade tensions, according to a draft statement from the Group of 20 leading economies obtained by Bloomberg News.

"Downside risks over the short and medium term have increased," said the document. A final version of the statement will be published late Sunday.

Among the other risks to global growth, the text cites "rising financial vulnerabilities, heightened trade and geopolitical tensions, global imbalances, inequality." The G-20’s March statement didn’t exclusively mention trade tensions.

While emerging markets are better prepared, they still face market volatility and possible capital outflows, the draft says.