The most worrying economic trend is tariff policy ‘like it or not’: IMF chief
According to Kristalina Georgieva, Managing Director of the International Monetary Fund, the world economy is heading for a soft landing, inflation is falling and interest rate cuts are imminent, but she said the increase Trade restrictions, including tariffs, from the world’s largest economies are inevitable. “most worrying” risk to global growth.
“Trade is slowing down more than it probably will slow down,” Georgieva said in an interview with Sara Eisen at the CNBC CEO Summit in Washington, DC on Tuesday.
The IMF has watched trade restrictions triple in the past year, from 1,000 to 3,000, and the IMF’s managing director said two-thirds of those tariffs were unfounded. “The most worrying thing is that we see the willy-nilly application of industrial policy everywhere,” she said.
Everywhere, Georgieva primarily means the world’s three largest economic powers: America, China and the European Union. “Half of all industrial policy measures come from these places and when we do our analysis [the tariffs] … we can find justification for a third,” she said.
The IMF managing director has tried to strike a balance between understanding the need for greater trade restrictions, while also calling for more cautious approaches to tariffs.
“We have to accept that there are some reasons why the love for tariffs has reappeared,” Georgieva said. “Globalization doesn’t really work for everyone.”
She also noted that the Russia-Ukraine war has taught many countries about the importance of supply chain security and the need to diversify supply sources.
As the two major party candidates for the US presidency, President Biden and Donald Trump, both pursue aggressive tariff policies, Georgieva said changes in trade patterns have led to slower growth compared to IMF predictions. She said: “I remember many times when industrial policy became ‘favorable’ and then became extremely disappointing, for the simple reason that governments are not very good at choosing the companies that will be win”.
IMF calculations show that trade restrictions could cost the global economy anywhere from as little as 0.2% in growth in the best case to up to 7% of GDP in the worst case. “Taking 7% out of the world means Japan and Germany are gone,” Georgieva said. She added that when a country implements trade restrictions, the probability of reciprocity is 75%, adding to her concerns about the law about unintended consequences. “We are calling for carefully calculated actions to meet national security and economic security needs, but let’s not throw the baby out with the bathwater. The question is how logical we are.” level.”
In the short term, things look good as the IMF recently raised its growth outlook to 3.2%. The recent performance of the global economy has also far exceeded expectations, led by the United States, with global GDP growing 6.7% over the past two years – nearly 1 percentage point higher than the IMF forecast in 2019. 2022.
Georgieva said her concerns centered on the medium-term growth outlook, which she called “quite disappointing.”
The IMF predicts annual global growth of about 3% in the coming years, a figure she noted is nearly 1% lower than before Covid. “This slow growth means people are disappointed, families are worried about their financial future,” she said. Unless we grow faster, increase productivity, we will have more people on the streets.”
She said the gap between advanced countries and emerging economies benefiting from globalization could widen, with poor countries falling behind for the first time in three decades. “Small open nations beg us to bring common sense into decision-making.”
Over the past 30 years, the world economy has tripled, while emerging markets in developing economies have quadrupled. “We are better off championing a level of integration that works for everyone. … Pushing costs up, what do you think will happen to prices? They increase!” Georgieva said. And as “poverty increases, hunger increases, it will ultimately affect global security.”
