The International Monetary Fund has warned the trade tariffs favoured by US presidential candidate Donald Trump could hurt global growth, as it upgraded its forecast for the UK economy.
The Washington-based organisation said tariffs trigger tit-for-tat trade wars that impoverish the economies involved in the dispute and the wider global economy.
It said there had been a very sharp increase in the number of trade-distorting measures implemented by countries over the last five years, from 1,000 in 2019 to 3,000 today and a fresh round of tariffs would create further harm.
Pierre-Olivier Gourinchas, the IMF’s chief economist, said: “There is definitely a direction of travel here that we are very concerned about, because a lot of these trade-distorting measures could reflect decisions by countries that are self-centred and could be ultimately harmful not only to the global economy … but also hurtful for the countries who implement them as well.”
He added: “The impact on global trade also makes the residents of a country [implementing tariffs] poorer.”
The IMF has forecast growth of 3.2% for the world economy this year and next but said on Tuesday that higher tariffs on a “sizeable swath” of world trade by the middle of next year could cut 0.8% from output in 2025, and 1.3% in 2026.
As he prepares for the US election on 5 November, Trump has outlined plans to impose significant tariffs on imported goods, a policy that is likely to trigger a series of tit-for-tat measures. China is expected to be his main target, though goods from the European Union could also be in his sights.
Christine Lagarde, the president of the European Central Bank, told Bloomberg that the US had historically thrived during periods of trade, not periods of “I’m going to retire behind my boundaries and play at home”.
The US treasury secretary, Janet Yellen, warned that broad tariffs were a “misguided approach” and would have a negative impact on consumers and export industries.
The IMF said in its bi-annual economic outlook that the UK economy would be among those countries to grow faster than previously thought this year, giving the chancellor, Rachel Reeves, a boost before her first budget next week.
In a significant revision, UK growth in 2024 is expected to be 1.1%, up from a projection of 0.7% in July. The IMF’s forecast for 1.5% growth next year was unchanged.
Reeves, who is due to join finance ministers and central bank governors on Thursday at the IMF’s annual meeting in the US capital, has made economic growth the centrepiece of Labour’s plans over the next five years.
The IMF said that nations such as the UK that depend on services had grown strongly this year, leaving behind those including Germany that were more reliant on selling manufactured goods.
The IMF said UK growth would pick up to 1.5% in 2025, as falling inflation and interest rates stimulate domestic demand.
Reeves said: “It’s welcome that the IMF have upgraded our growth forecast for this year, but I know there is more work to do.
“That is why the budget next week will be about fixing the foundations to deliver change, so we can protect working people, fix the NHS and rebuild Britain.”
The UK is expected to be the joint third fastest-growing economy in the G7 this year, in line with France and behind the US which is on course to grow by 2.8% and Canada, which is forecast to grow by 1.3%. Italy lags behind with 0.7% growth, Japan with 0.3% and zero growth in struggling Germany.
Gourinchas said Europe was on a steady and improving path but growth remained lower than in the decades leading up to the 2008 financial crash.
However, in a cautionary message Gourinchas said that countries such as the UK were treading a “narrow path” as they try to bring debt levels down while continuing to increase public investment.
Without commenting directly on next week’s budget, Gourinchas said that when countries have elevated debt levels, interest rates were high, and growth was “OK but not great”, there is a risk that “things could escalate or get out of control quickly”.
Gourinchas said the global economy had remained “unusually resilient throughout the disinflationary process” of the last two years when central banks raised borrowing costs to calm spiralling prices.
“Monetary policy played a decisive role by keeping inflation expectations anchored, avoiding deleterious wage-price spirals, and a repeat of the disastrous inflation experience of the 1970s,” he said, adding: “The decline in inflation without a global recession is a major achievement.”
