Global (Commonwealth) _ The International Monetary Fund (IMF) informed that if there is a broad-based trade war between the world’s main countries, the global economy might shrink by the size of the combined French and German economies.
While the European Union is already preparing a response if Washington moves forward with the new charge, Donald Trump claims he intends to impose a universal tax or tariff of up to 20% on all imports to the US. Trump’s campaign centered on America first maybe favourable for the domestic economy being the dominant player in global trade but likely to be a concern for trade outside the USA.
Following Trump’s statement last week that “tariff is the most beautiful word in the dictionary,” international markets and finance ministers are now starting to examine the possibility of his implementing the ideas seriously.
Gita Gopinath, the Deputy Managing Director of the IMF, stated that while the Fund is unable to evaluate the details of Trump’s trade proposals at this time, it believes that a significant decoupling and widespread use of tariffs may result in a nearly 7% loss to global GDP.
These figures are enormous; 7% essentially represents a decline in the economies of Germany and France. “That’s how big the loss would be,” she added.
Additionally, Ms. Gopinath stated that tariffs totaling hundreds of billion dollars are a significant departure from the world we have known for the last two or three decades.
The deputy head of the IMF stated that warning against the skyrocketing levels of global government debt was one of the Fund’s key messages at its annual meetings.
Since this won’t be the last crisis, she warned, the current era of consistent economic growth was a “moment to rebuild your fiscal buffers.” More shocks are on the way. To react, you’ll need the financial room. And the time to do it is now. After “some very tough knocks,” Ms. Gopinath said it was also important to “look at the bright side” of a robust global economy.
She stated that the numerous crises had led to a gradual recovery for the global economy.
Previous attempts to lower inflation have not involved a smooth landing. The unemployment rate increased significantly. That proved to be a huge success and far better than many had anticipated, she said.
Ms. Gopinath went on to say that the fact that inflation has decreased without high unemployment is a “good win” for central banks worldwide. However, in a world that is vulnerable, now was the time to rebuild resilience. When one nation retaliates against another by increasing import taxes or imposing other limitations on the other’s imports, it is known as a trade war.
If one nation believes that another country engages in unfair trade practices, trade wars may break out. Politicians may be pressured by domestic trade unions or industry lobbyists to lower the appeal of imported goods to consumers, which could lead to a trade war. Additionally, a lack of knowledge of the broad advantages of free trade frequently leads to trade wars.
President Trump intensified his efforts in early 2018, especially against China, threatening steep tariffs and hefty penalties for suspected intellectual property (IP) theft. In response, the Chinese imposed a 25% levy on more than 100 American goods. Both nations maintained the cease-fire during the trade war until 2019. A trade deal between the United States and China appeared imminent in the spring.
Chinese negotiators adopted a new tough stance at the start of May, demanding the removal of existing tariffs and refusing to alter their company-subsidizing legislation. The President became enraged at this seeming reversal and, on May 5, 2019, declared that he will raise tariffs on $200 billion worth of Chinese imports from 10% to 25% starting on May 10. The fact that the U.S. trade imbalance with China has decreased to its lowest level since 2014 might have given him more confidence.
In reaction, China banned all imports of agricultural products from state-owned companies.
For the first time in more than ten years, the Asian country’s central bank also devalued the yuan above the seven-dollar reference rate, raising fears of a currency war.
On January 15, 2020, the United States and China negotiated a trade agreement, possibly understanding that this was detrimental to both parties.
