IMF Chief Calls On Countries to Ward Off Protectionist Pressures
The head of the International Monetary Fund (IMF) warned on Wednesday 11 April of looming uncertainty in the global economy, suggesting that even amid recently strong economic growth, countries must do more to stave off instability and risk, particularly by avoiding protectionist pressures.
Speaking in Hong Kong just days before the IMF and the World Bank Group hold their Spring Meetings, IMF Managing Director Christine Lagarde suggested that the time is right for countries to pursue economic reforms proactively, given positive growth prospects.
“We see global momentum – driven by stronger investment, a rebound in trade, and favourable financial conditions – which is encouraging companies and households to increase their spending,” she said. Lagarde also previewed the IMF’s upcoming growth estimates, due to be released next week in tandem with the Spring Meetings, suggesting that the Fund “continue[s] to be optimistic.”
However, she also told audience members that the rules-based international trading system “is now in danger of being torn apart” – suggesting that this outcome, should it come to pass, would constitute “an inexcusable, collective policy failure.”
Lagarde also questioned the increased focus in current political debate on trade deficits. Washington officials under the current Trump administration have been vocal about their interest in reducing trade deficits with major partners, conducting reviews of agreements where such deficits exist and seeking renegotiations of existing accords to rectify alleged imbalances.
“Discussions about trade restrictions are often bound up with the concept of trade deficits and surpluses. Some people argue that these imbalances indicate unfair trade practices,” Lagarde noted.
“Yes, there are unfair practices – which must be eliminated – and which can leave their mark on trade balances between two countries. But in general, these bilateral imbalances are a snapshot of the division of labour across economies, including global value chains,” she continued, also suggesting that “unfair” trade practices have little to do with “a country’s overall trade deficit with the rest of the world.”
She referred to Washington and Berlin as examples where a different approach could prove useful. For example, she suggested that fiscal measures could be more productive for the US’ purposes than tariffs, saying these could include steps to curb government expenditure and improve revenue generation.
Lagarde also highlighted other potential risks, such as burgeoning public debt, large government deficits, and insufficient safeguards for financial systems. She also made specific reference to the need for improving intellectual property rights (IPR) protections and “reducing the distortions of policies that favour state enterprises,” without naming any particular country in this respect.
The Spring Meetings in the US capital city next week are expected to feature high-profile debates over the current macroeconomic context, particularly on trade. The 16-22 April event has as its theme “Meeting Global Aspirations and Challenges” and includes within its packed schedule meetings on technology and the digital economy, carbon pricing, and the gender divide.
The IMF-WBG meetings are held biannually and provide a forum for finance and development ministers from their 189 member countries, among others, to address opportunities and risks to the global economy and development prospects, along with potential reforms to the two organisations.
The steering bodies for both agencies meet during those events, which also coincide with the release of new economic growth projections, seminars on key macroeconomic and development topics, networking among top officials, and informal meetings of key country groups, including finance ministers and central bank governors from the G20.
Trade tensions in the background
Indeed, the past few months have seen a ratcheting up in trade tensions among some of the world’s largest economies, with national leaders and intergovernmental organisations warning against an escalation in tensions and the proliferation of unilateral trade measures. Should countries fail to heed these warnings, they warn, the implications could be severely damaging for the global economy.
Among the more high-profile of these trade developments was the US move to enact global tariffs on imported steel and aluminium, citing national security grounds. Those duties are now in place, minus a selected group of countries which have received a temporary exemption from the US, currently set to last through 1 May unless other deals are reached.
In addition, the prospect of US tariffs on various Chinese products, among other measures, in response to alleged intellectual property rights concerns has fuelled a public row between officials in Washington and Beijing. These US steps are under a “Section 301” action, named for the provision under the 1974 Trade Act which delineates possible steps the US executive can take to ensure “relief from unfair trade practices,” following an investigation and in line with specific requirements. (See Bridges Weekly, 22 March 2018)
The US published a proposed list covering 1300 tariff lines of Chinese goods, which could end up facing hefty tariffs as part of these “Section 301” actions. The move has since drawn a public rebuke from China, which has said that while it prefers to address the issue via the WTO, they are also preparing other contingency measures. Meanwhile, Washington is now examining whether more actions under “Section 301” might be warranted.
“The US, regardless of China’s solemn protest, has released the groundless proposed tariff list. This is a typical action of unilateralism and trade protectionism which China strongly condemns and opposes,” said a spokesperson from China’s Ministry of Commerce (MOFCOM) last week.
“The US’ approach has seriously violated the basic principles and spirit of the WTO. China intends to immediately appeal to the WTO dispute settlement mechanism for the US’ practices,” the spokesperson continued, adding that Beijing is concurrently putting together “measures of equal strength and scale on the US products according to the relevant provisions of the Foreign Trade Law of the People's Republic of China.”
China has since filed the above-mentioned WTO challenge, submitting a request for consultations last week focused on the proposed list of products. Separately, China has also launched a WTO dispute on the steel and aluminium tariffs.
“President Xi and I will always be friends, no matter what happens with our dispute on trade. China will take down its Trade Barriers because it is the right thing to do. Taxes will become Reciprocal & a deal will be made on Intellectual Property. Great future for both countries!” said US President Donald Trump on social media site Twitter last week.
A full report on the outcomes of the IMF-WBG Spring Meetings will be featured in a future edition of Bridges.