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US trade war threat to global economy

Global growth downgraded from 3.9 per cent in July to 3.7 per cent

The International Monetary Fund (IMF) has warned a trade war between the US and China risks making the world a “poorer and more dangerous place” in its latest assessment of the global economy. The IMF has lowered its forecast for global growth this year and next.

It said that a full-blown trade war between the US and China would put a significant dent in economic recovery. Its chief economist said further trade barriers would hit households, businesses and the wider economy.

“Trade policy reflects politics and politics remain unsettled in several countries, posing further risks,” said Maurice Obstfeld.

Midterm elections

Most recently, China announced new trade tariffs on $60 billion (Sh6.1 trillion) of US goods, including products such as liquefied natural gas, produced in states loyal to the US President Donald Trump.

In a tweet, Trump warned Beijing against seeking to influence the forthcoming US midterm elections.

“There will be great and fast economic retaliation against China if our farmers, ranchers and/or industrial workers are targeted!” he said. US tariffs on $200 billion (Sh20.2 billion) of Chinese imports came into effect last month.

Global economic growth is now expected to reach 3.7 per cent in 2018 and 2019, down from the IMF’s previous prediction of 3.9 per cent in July. It said that risks to the short-term outlook had “shifted to the downside”.

Tax cuts

The US and China’s escalation of trade tariffs is expected to hit growth in both countries in 2019, when the boost from President Trump’s sweeping tax cuts will also start to wane.

Obstfeld said the world would become a “poorer and more dangerous place” unless world leaders worked together to raise living standards, improve education and reduce inequality. –BBC

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