IMF Warns on Global Growth Risks amid US Tariff Shock
IMF Warns on Global Growth Risks amid US Tariff Shock
International organizations like the IMF play a significant role in screening the global economy with the help of currency exchange values and trade deficits. By monitoring the current global economy, the IMF has anticipated global GDP outlook to be around 3% but also warned of downward growth by 0.5%–1.2% by 2025 due to ongoing tariff policies. Such trade policies have already shown some bitter events like the historical trade war between China and the US that can be a model to learn lessons before a big hit in present time. The current US tariff policy has ignited global responses like the countermeasures of China to sustain their growth.
IMF’s Growth Estimate in Its Recent Policy
The IMF has been an actor in predicting and monitoring the shocks of major events like the oil crisis of the 1970s and the Asian Financial Crisis of 1997. Similarly, it has presented its growth estimation for the upcoming year keeping in view the present condition of global trade. In 2024, the IMF predicted inflationary stress in the US and growth reduction by 2.7% to 2.1%. Similarly, China is going to face 4.5% reduction in its overall growth due to tariffs on its exports. Due to high alert of risk, multinational companies prefer Vietnam and Mexico over China for sustainable investment projects. This supply chain disruption is leading towards a high rate of inflation. It is estimated that high taxes and tariffs on Chinese products will elevate consumer prices by 1.3%. Due to interlinkage on the platform of globalization, developing countries like Pakistan will face dollar shortage and ultimately debt crisis.
Lessons from Historical Trade War Between China and US
China and the US have been in competition for decades. In the history of US–China relations, they observed a trade war in 2019 due to trade taxes and tariffs. As a result, global GDP suffered a -0.4% growth. The US imposed $370B in damages on Chinese tech companies and in return China targeted the US agriculture sector. The direction of US imports shifted from China to Vietnam with an extra 32% increase in 2019. The history of the US–China trade war gives deep lessons to the global economies amidst ongoing US tariff policies.
US Tariff Policy of Protectionism and Its Shocks
The US has been involved in implementing tariff policies throughout history. Its tariffs have often resulted in worse aftermaths like the Great Depression due to its 1930 Smoot–Hawley Tariff Act. Under Donald Trump, the US is promoting MAGA (Make America Great Again) to dominate the global economy. The US has implemented sanctions on semiconductors in China. In 2022, US legislation enacted the CHIPS Act and the Inflation Reduction Act, to promote domestic manufacturing. The former targeted the semiconductor industry while the latter focused on taxation, social issues, and climate change.
On the other hand, China responded with 25% retaliatory tariffs on US agricultural exports. As a result, US imports from Mexico increased to over $500 billion. The US tariff policy has not only impacted China but also shocked the entire world.
Global Response on US Tariff Policy
The US tariff policy has shaken the world. China has shown countermeasures to deal with its aftermaths. China produces almost 90% of the world’s rare earth metals used in the US defense industry for fighter jets and submarines. China has stopped exporting rare earths to the US after its tariff policy. The Motor & Equipment Manufacturers Association (MEMA) reported damage such as reduced vehicle production due to supply chain limitations. Moreover, China has allocated $140B to support its domestic semiconductor industry to avoid US shocks. The US tariff policy has sparked a global response in the form of countermeasures and retaliatory actions.
The IMF’s warning regarding the protectionism of the US highlights the risk of global economic stagnation and downward growth by 0.5%–1.2% by 2025. To deal with the expected recession, US protectionism must be balanced with policies to control inflation. China has devised counter-policies to strengthen domestic industries and reduce over-dependence on exports. The world now faces a choice between protectionism and coordinated growth to remain stable in a globalized system.
Disclaimer:
The views and opinions expressed in this article are exclusively those of the author and do not reflect the official stance, policies, or perspectives of the Platform.
