IMF's Lagarde warns of worse trade hit to global economy

IMF Chief Christine Lagarde. (Photo: AFP/Kazuhiro Nogi)

Just last month, the International Monetary Fund warned of the dangers of the trade frictions - notably between the United States and China, which have exchanged tariffs on hundreds of billions in products.

But IMF chief Christine Lagarde said those headwinds "could have slowed momentum even more than we had expected."

In a report for the Group of 20 leaders meeting in Buenos Aires, the IMF said auto tariffs, if imposed, could cut three fourths of a percent off the global economy.

Emerging market economies, especially China and the euro area, are already seeing their economies slow, while a "no-deal Brexit could further dent confidence," Lagarde said in a blog post that accompanied the report.

The report said trade and Brexit risks "remain acute," and the uncertainty itself creates difficulties for companies by tightening credit conditions.

Investment would be reduced further if President Donald Trump follows through on his threat to impose steep tariffs on auto imports from all countries except Canada and Mexico, which would result in retaliation from trading partners on US exports.

An IMF calculation "suggests that the resulting short-term losses could lower global GDP by about 3/4 per cent."

Trump has threatened to impose tariffs on autos as part of his aggressive trade strategy focused on preserving US jobs. He also has hit half of US imports from China with steep punitive tariffs, which has drawn retaliation from Beijing.

But he is due to meet in Buenos Aires with Chinese leader Xi Jinping, and a White House official said Tuesday that Trump sees a "good possibility" for a deal to defuse the trade frictions.

Lagarde warned the G20 gathering in Argentina that "the global economy faces a critical juncture."

"We have had a good stretch of solid growth by historical standards, but now we are facing a period where significant risks are materializing and darker clouds are looming."

She again stressed that "rising trade barriers are ultimately self-defeating for all involved. Thus, it is imperative that all countries steer clear of new trade barriers, while reversing recent tariffs."