IMF: US-China Tariffs to Slash $455B Off Global Growth in 2020

Current and threatened U.S.-China tariffs could slash global economic output by 0.5% in 2020, the International Monetary Fund warned on Wednesday as world finance leaders prepare to meet in Japan this weekend.

IMF Managing Director Christine Lagarde said in a blog and briefing note for G-20 finance ministers and central bank governors that taxing all trade between the two countries, as President Donald Trump has threatened, would cause some $455 billion in gross domestic product to evaporate — a loss larger than G-20 member South Africa’s economy.

“These are self-inflicted wounds that must be avoided,” Lagarde said in an IMF blog post. “How? By removing the recently implemented trade barriers and by avoiding further barriers in whatever form.”

The IMF said that U.S. tariffs and Chinese retaliatory measures put in place thus far, including a recent increase in U.S. tariffs to 25 percent on a $200 billion list of Chinese imports, could cut 2020 growth by 0.3 percent. More than half of that impact comes from negative effects on business confidence and financial market sentiment.

“The fact is that protectionist measures are not only hurting growth and jobs, but they are also making tradable consumer goods less affordable - and disproportionately harming low-income households,” Lagarde said.

The trade tensions had already contributed to the IMF cutting 0.4 percentage point from its 2019 growth forecast in April to 3.3 percent. On Wednesday, the Fund said incoming data suggested that its expectations were on target for a modest pickup in growth in the second half of this year due to more accommodative monetary policy and economic stimulus measures in China.

The IMF is predicting 3.6 percent global growth for 2020, but said this outlook is vulnerable to trade tensions, uncertainty over Britain’s exit from the European Union, uncertain recoveries in some stressed economies such as Argentina and Turkey.

If growth falters, the IMF said that policymakers should act in a coordinated fashion including “decisive” actions to ease monetary policy and fiscal stimulus in countries that have available resources. These would be more effective if the policy response was “synchronized” across the globe and coupled with structural reforms aimed at improving economic efficiency, the IMF said.

Lagarde also argued for stepped-up efforts to strengthen World Trade Organization rules, especially on subsidies, intellectual property protections and trade in services. She cited IMF research showing that liberalizing trade in services could add about $350 billion to global GDP in the long run.