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IMF warns US-China trade war is threat to global growth in 2019

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The US-China tariff dispute harms businesses and consumers in both countries, and threatens to spillover into the global economy, the IMF warns. AFP

IMF warns US-China trade war is threat to global growth in 2019

The International Monetary Fund (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.

IMF chief economist Gita Gopinath directly refuted US 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 25 per cent and threatened to hit the remaining $300 billion 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 totalled $379 billion 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.

“While the impact on global growth is relatively modest at this time, the latest escalation could significantly dent business and financial market sentiment, disrupt global supply chains and jeopardise the projected recovery in global growth in 2019,” she warned in the blog post.

“This type of scenario is among the reasons why we referred to 2019 as a delicate year for the global economy.”

In addition, if tariffs escalate this will make a host of consumer goods less affordable, “harming low income households disproportionately”.

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