Resolving trade disputes
The world has witnessed a tumultuous phase since the day US President Donald Trump announced an aggressive campaign of taxes on foreign imports. The move led to unpredictability in trade across the globe with experts warning that decisions need to be taken to set things right.
The head of the International Monetary Fund Kristalina Georgieva this week urged countries to move swiftly’ to resolve trade disputes that threaten global economic growth.
The move by the US president is causing companies to delay investments and consumers to hold off on spending.
Georgieva’s comments came two days after the IMF downgraded the outlook for world economic growth this year. The 191-country lending organisation, which seeks to promote global growth, financial stability and to reduce poverty, also sharply lowered its forecast for the United States.
It said the chances that the world’s biggest economy would fall into recession have risen from 25 per cent, to about 40 per cent. The IMF chief warned that the economic fallout from trade conflict would fall most heavily on poor countries, which do not have the money to offset the damage.
Ironically, Trump has aggressively imposed tariffs on American trading partners. Among other things, he’s slapped 145 per cent import taxes on China and 10 per cent on almost every country in the world, raising US tariffs to levels not seen in more than a century. But he has repeatedly changed US policy — suddenly suspending or altering the tariffs — and left companies bewildered about what he is trying to accomplish and what his end game might be.
Trump’s tariffs — a sharp reversal of decades of US policy in favour of free trade — and the resulting uncertainty around them has caused a weekslong rout in financial markets. But stocks rallied during the midweek after the Trump administration signalled that it is open to reducing the massive tariffs on China.
Notably, the World Bank too beelines that international trade and manufacturing activity have softened, trade tensions remain elevated, and some large emerging markets have experienced substantial financial market pressures.
The growth among advanced economies is forecast to drop to two per cent this year. Slowing external demand, rising borrowing costs, and persistent policy uncertainties are expected to weigh on the outlook for emerging market and developing economies.
All this is happening as the global financing conditions have tightened, industrial production has moderated, trade tensions have intensified, and some large emerging market and developing economies have experienced significant financial market stress.
Besides, a sharper tightening in borrowing costs could depress capital inflows and lead to slower growth in many emerging market and developing economies.
The situation is presenting a challenge for all the emerging economies like those of India. The policy planners need to see the approaching troubles well in advance and start preparations for the same.
Importantly, the warning issued by the financial institution like the IMF can have a very deepening effect which needs to be cut down to minimum as economic and financial headwinds intensify for emerging and developing countries.
