The head of the International Monetary Fund has warned that trade tensions between the United States and China and some other countries could erode the confidence that is vital for global growth.
Christine Lagarde, the IMF’s managing director, said on Thursday that the actual impact on global growth from trade tensions, friction and threats is not very substantial as measured by GDP.
What’s more important, she said, is something that’s more difficult to measure in the short term.
“That has to do with the erosion of confidence. 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,” she told a news conference in Washington during the annual spring meeting of the IMF/World Bank.
Unilateral trade actions taken by the administration of US President Donald Trump have triggered widespread concerns about a trade war, especially between the US and China, the world’s two largest economies.
In March, the US imposed steel and aluminum tariffs in the name of national security, a move widely regarded as potentially devastating to the global trading system if other countries follow suit by bypassing the World Trade Organization.
The US also threatened tariffs on $150 billion worth of Chinese imports following its investigation, under Section 301 of the US Trade Act of 1974, of China’s intellectual property policies and practices. In return, China has proposed retaliatory measures and vowed to fight to the end.
Lagarde said: “The world is so interconnected. The supply chains are involving so many different countries－regional, intraregional, interregional－that it would affect the global economy,” she said.
She emphasized that investment and trade have driven global growth in recent years and said, “So why damage those two engines that are effectively working for growth?”
The World Economic Outlook that the IMF unveiled on Tuesday raised the growth forecast for the world and most economies, but also warned about the negative impact of recent import restrictions announced by the Trump administration.
Lagarde, who was in China last week for the Boao Forum for Asia, said the opening-up measures announced by President Xi Jinping at Boao are “certainly going in the right direction of removing barriers and facilitating investment…. We will be very attentive to the actual implementation and delivery of such measures.”
