IMF Managing Director Christine Lagarde said the risks to the global economy are rising as major industrial nations sharpen threats of a trade war.
“The clouds on the horizon that we have signaled about six months ago are getting darker by the day -- and, I was going to say, by the weekend,” Lagarde said at a news conference in Berlin on Monday.
Her remarks follow a chaotic two-day meeting of the Group of Seven in which President Donald Trump shocked fellow leaders with his disregard for US allies. After leaving the summit early, Trump tweeted he was pulling US support from a joint statement and he accused the host, Canadian Prime Minister Justin Trudeau, of being weak and dishonest.
Other G-7 countries lobbied unsuccessfully at the summit for the US to reverse new tariffs on steel and aluminum imports. Trump turned the tables by challenging world leaders to eliminate all trade barriers, tariffs and subsidies and he threatened to stop trading with them entirely.
Germany and France, who are also part of the G-7, criticised Trump for withdrawing his support, and were joined by the U.K. in reiterating their backing of the communique.
Lagarde’s concerns were echoed by World Trade Organization Director-General Roberto Azevedo, who said growing trade frictions could cause serious damage to the world economy.
“The rising trade tensions that we see before us, they risk a major economic impact, undermining the strongest sustainable period of trade growth since the financial crisis,” Azevedo said at the Berlin meeting. “We must therefore stop this escalation of tensions. A tit-for-tat process is not going to be helpful. It’s not going to help anyone.”
Lagarde, who attended the summit in Quebec, didn’t mention Trump by name. Her warnings about the risks of protectionism have grown more pointed in recent weeks, as the Trump administration has imposed more tariffs and threatened others, including against China.
On Monday, she said the “biggest and darkest cloud” over the global economy is the risk of a deterioration of confidence “by attempts to challenge the way in which trade has been conducted, in which relationships have been handled, and the way in which multilateral organisations have been operating.”
The fund projects the global economy will grow 3.9 per cent this year and next, the fastest pace since 2011. Beyond that horizon, it’s more pessimistic, predicting growth will weaken as central banks raise interest rates, US fiscal stimulus fades and China’s gradual slowdown continues.
Asked about the US’s backsliding into protectionist trade policies, Lagarde recalled comments from Supreme Court Justice Ruth Bader Ginsburg. “She was asked, after more than 50 years of marriage, what was the secret of her marriage? And she said this: It helps being a little bit deaf on occasions,” Lagarde said.
The International Monetary Fund, which has 189 member countries, was conceived during the Second World War to oversee the international monetary system and promote open-market policies that drive growth. The US is the fund’s biggest shareholder.
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