- President Donald Trump has begun a pursuit of protectionist trade policies – like tariffs.
- Major economic groups including the Federal Reserve, World Trade Organisation, and International Monetary Fund have all warned against these measures.
- The groups warned that continued protectionist policies could sink the global economy.
President Donald Trump’s recent trade moves have drawn a strong rebuke in recent days from the world’s largest economic organisations – all of who are sending dire warnings about the risk of a trade war.
Officials from the Federal Reserve, International Monetary Fund, and World Trade Organisation have all mentioned the recent rash of protectionist policy and rhetoric, particularly from the US, in terse public statements over the past few weeks.
The groups seem to have one message for the president: Be careful.
‘Downside risks for the US economy’
The worries over a trade war began in earnest with Trump’s tariffs on steel and aluminium, announced at the beginning of March.
This protectionist shift warranted a mention by the Fed in theirMarch meeting minutes, released April 11. The central bankers said the metal tariffs wouldn’t matter much to the US economy, but warned the move could set the country on a dangerous path.
“Participants did not see the steel and aluminium tariffs, by themselves, as likely to have a significant effect on the national economic outlook, but a strong majority of participants viewed the prospect of retaliatory trade actions by other countries, as well as other issues and uncertainties associated with trade policies, as downside risks for the US economy,” the minutes said.
Trump’s recent trade posturing may already be affecting the US economy.
“Increased trade protectionism is already having a noticeable impact on US economic data, depressing private sector confidence, weighing on activity, and gradually pushing up inflation,” said Jake McRobie, an associate economist at Oxford Economics.
McRobie noted that a rash of economic outlook surveys, from the Empire Manufacturing Index to the University of Michigan’s consumer confidence survey, sank in part due to trade concerns. McRobie also cited large jumps in steel and aluminium prices that have already begun pushing up costs for manufacturers.
And the concerns have been felt globally.
‘The last thing the world economy needs’
Several globally influential economic groups have also issued warnings about Trump’s trade policies over the past two weeks.
Maurice Obstfeld, the IMF’s chief economist, said in a recent report that the world economy’s current strength could be hurt by anti-free trade policies like tariffs.
“The prospect of trade restrictions and counter-restrictions threatens to undermine confidence and derail global growth prematurely,” Obstfeld said.
The economist did not mention Trump by name, but he noted that the president’s trade policies are highly unlikely to help with Trump’s stated goal for the tariffs: reducing the US trade deficit.
“These initiatives will do little, however, to change the multilateral or overall US external current account deficit, which owes primarily to a level of aggregate U.S. spending that continues to exceed total income,” Obstfeld said.
IMF Managing Director Christine Lagarde also extolled the virtues of the current trade system, using global poverty reduction as an example of how lowering trade barriers can be successful. The IMF chief warned against abandoning the system in favour of protectionism.
“But that system of rules and shared responsibility is now in danger of being torn apart,” Lagarde said. “This would be an inexcusable, collective policy failure.”
The WTO expressed its concern in an April 12 economic outlook report. The WTO economists responsible for the report found that the current trajectory but the specter of trade fights could damage this outlook.
“Balanced against these broadly positive signs is a rising tide of anti-trade sentiment and the increased willingness of governments to employ restrictive trade measures,” said the report.
WTO director-general Roberto Azevedo followed up the report with his own word of caution about the escalating tensions between countries such as the US and China.
“A cycle of retaliation is the last thing the world economy needs,” Azevedo said.
Whether or not Trump heeds the international community’s warnings remains to be seen. So far, the president has shown a willingness to take the rougher edges off the tariffs. For instance, he allowed exemptions to the metal tariffs. But it is tough to judge whether this pattern will continue, given the president’s erratic approach to policy.
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