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IMF Warns US Tariffs Could Prove “Counterproductive” to Global Trade

Though the International Monetary Fund’s current outlook for the U.S. economy is bright, the organization warned that looming tariffs and their countermeasures could pose significant risks to the global economy.

In a statement Thursday, IMF director Christine Lagarde said unilateral trade actions aren’t only disruptive, but they can prove counterproductive to the global economy and global trade as a whole.

“In a so-called trade war, driven by reciprocal increases of import tariffs, nobody wins. One generally finds losers on both sides,” Lagarde said. “Also, let us not underestimate the macroeconomic impact. It would be serious, not only if the United States took action, but especially if other countries were to retaliate, notably those who would be most affected, such as Canada, Europe, and Germany, in particular.”

Each, and including Mexico, has already promised to retaliate with tariffs of their own in light of the United States’ actions.

Canada and the U.S. are caught in the fray of a spat between President Trump and Canadian prime minister Justin Trudeau over actions on trade, and Trudeau has been firm in his position that Canada will impose equivalent tariffs to what the U.S. has outlined for steel and aluminum, and that these countermeasures would take effect from July 1. The European Union has said much the same, detailing duties on $3.3 billion worth of U.S. products, including T-shirts, jeans and cotton bed linen.

The actions and reactions, apart from damaging long-standing relations, could incite a global trade war where consumers come out the biggest losers and no economy will likely emerge unscathed.

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Though the IMF opened the trade policy section of its newly released review of U.S. economic policy by saying the U.S. “maintains a very open trade regime,” the report continued to note “public concern” related to the side-effects of that openness has increased, but the measures to address them may only serve to fuel risks.

“These measures,” the IMF report noted, “Are likely to move the globe further away from an open, fair and rules-based trade system, with adverse effects for both the U.S. economy and for trading partners.”

The risks, it said, include catalyzing retaliatory responses (which it has), paving the way for more countries to turn to national security motivations as a means to justify import restrictions, impacting emerging and developing economies through commodity price volatility, and upsetting global and regional supply chains “in ways that are likely to be damaging to a range of countries, and to U.S. multinational companies, that are reliant on these supply chains.”

As such, the IMF has urged the U.S. to talk it out with its trading partners without using tariffs as a tactic.

Tariffs aside, Lagarde said in addressing the near-term economic outlook, that the U.S. economy “is doing even better than last year,” with stronger growth, contained inflation, high consumer and business confidence and unemployment near the lowest it’s been since the ‘60s.

“Within the next few years, the U.S. economy is expected to enter its longest expansion in recorded history. The Tax Cuts and Jobs Act and the approved increase in spending are providing a significant boost to the economy,” Lagarde said. “We forecast growth of close to 3 percent this year but falling from that level over the medium-term.”