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The IMF sounded the alarm on Thursday about the escalating US-China trade war, warning it will "jeopardize" 2019 global growth, undermine confidence and raise prices for consumers.
Gita Gopinath, the International Monetary Fund's chief economist, directly refuted President Donald Trump's claim that tariffs are paid by China and provide a windfall for the US treasury, and that his aggressive posture will help reduce the US trade deficit.
She and her co-authors warned in a blog post that the economic damage will be even worse if Trump goes through with the threat to impose steep tariffs on all goods imported from China, as that "will subtract about one-third of a percentage point of global GDP in the short term."
Optimism was high earlier this month that a deal was within striking distance but tensions erupted after Trump accused Beijing of backtracking on its commitments made over the year of negotiations.
He then more than doubled tariffs on $200 billion in Chinese goods to 25 percent and threatened to hit the remaining $300 billion in products imported each year with duties at the same level.
"Consumers in the US and China are unequivocally the losers from trade tensions," Gopinath stated, noting that the "tariff revenue collected has been borne almost entirely by US importers."
IMF chief Christine Lagarde and other fund officials have repeatedly raised concerns about the trade war but the blog post quantified the realized and expected damage, presenting the case with greater urgency.
Trump says a primary goal of the aggressive tariff strategy is to reduce the trade imbalance with China, which totaled $379 billion last year.
But Gopinath argues that while the tensions have damaged both countries, reducing overall trade and hurting companies, "the bilateral trade deficit remains broadly unchanged."
- 'Delicate year' -
Meanwhile, total US imports have not changed significantly since importers simply shifted their purchases to other countries.
"While the impact on global growth is relatively modest at this time, the latest escalation could significantly dent business and financial market sentiment, disrupt global supply chains and jeopardize the projected recovery in global growth in 2019," she warned in the blog post.
"This type of scenario is among the reasons why we referred to 2019 as a delicate year for the global economy."
In addition, if tariffs escalate this will make a host of consumer goods less affordable, "harming low income households disproportionately."
A growing number of US companies and industries have come out to urge Trump to dial back the confrontation, including major shoe manufacturers and retailers who say new tariffs would be "catastrophic."
But Trump has not been receptive to concerns of business executives, nor research on the harm being done.
The New York Federal Reserve Bank issued research Thursday showing the total annual cost of the new round of tariffs to a typical household would rise to $831 from $132 in 2018.
"In sum, according to our estimates, these higher tariffs are likely to create large economic distortions," the study showed.
No new talks have been scheduled between Beijing and Washington, and China earlier Thursday accused the United States of "bullying," and called for a show of "sincerity" before negotiations can resume.
Foreign Minister Wang Yi on Wednesday warned that Beijing was ready to "fight to the very end."
WTO at risk of paralysis without urgent changes: Canada
Paris (AFP) May 23, 2019 -
Disagreements by major economic powers over how to overhaul the workings of the World Trade Organization could paralyse the institution unless quick changes are agreed, Canada's trade minister said Thursday.
The warning came after a third meeting of trade ministers aimed at reforming the global trade referee, following meetings in Ottawa in October and at the World Economic Forum in Davos, Switzerland, in January.
But as at the previous meetings, neither the US nor China were represented among the 13 ministers trying to hammer our initial proposals for new WTO rules that could later be submitted to the entire organisation.
Washington and Beijing are locked in an escalating trade war launched by President Donald Trump, who has accused the WTO of going too easy on China, to the detriment of American businesses.
"We understand that the US has serious reservations about the status quo," Canadian Trade Minister Jim Carr, who chairs the so-called Ottawa Group working on WTO reform, told AFP in Paris.
But for months Trump's administration has vented its anger by blocking the nominations of new judges to the WTO's Appellate Body, which settles disputes between members.
If the obstruction continues, by December 10 there won't be enough judges for the WTO's Dispute Settlement Body to function.
"There is some urgency... to reform," Carr said on the sidelines of the annual ministerial meeting of the Organisation for Economic Cooperation and Development (OECD).
"The question is to find a permanent solution that would satisfy the interests of major economies that have problems with the status quo," he said.
"And if we can't find a permanent solution, then Canada is certainly prepared to look at a temporary one."
The WTO itself has acknowledged that global trade rules have failed to keep up with the huge economic shifts since its founding in 1995.
Agriculture, service sectors and the explosion of border-hopping e-commerce operations in particular are the source of growing frictions between WTO members.
China, which joined the WTO as a "developing country" in 2001, has refused to give up that status despite emerging as a global economic powerhouse in recent years.
Trump has blasted Beijing's huge subsidies for state-owned businesses and its demand of technology transfers from foreign companies hoping to gain access to its huge market.
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