Top multilateral economic institutions, the International Monetary Fund and the World Trade Organisation, have warned that the reciprocal tariff measures announced by US President Donald Trump pose a serious threat to global outlook and world trade.
The WTO has estimated that the sweeping US tariffs on imports across sectors and countries could lead to an overall contraction of around 1 per cent in global merchandise trade this year, while the IMF has cautioned countries against taking any step that could further harm the world economy.
“While the situation is rapidly evolving, our initial estimates suggest that these measures (reciprocal tariffs), coupled with those introduced since the beginning of the year, could lead to an overall contraction of around 1 per cent in global merchandise trade volumes this year, representing a downward revision of nearly four percentage points from previous projections,” WTO Director General Ngozi Okonjo-Iweala said in a statement on Thursday.
The DG further said that she was deeply concerned about this decline in world trade and the potential for escalation into a tariff war with a cycle of retaliatory measures that lead to further declines in trade.
Trump announced sweeping tariffs on almost all countries on Thursday, representing a historic tax increase that threatens to disrupt world trade and lead to trade wars with many countries, including China and the EU, threatening retribution.
A 26 per cent reciprocal tariff was announced on all Indian exports, while China was slapped with tariffs of 34 per cent, the EU with 20 per cent, Vietnam with 46 per cent, Taiwan with 32 per cent, Cambodia with 49 per cent and Bangladesh with 37 per cent.
IMF Managing Director Kristalina Georgieva said that her institution was still assessing the macroeconomic implications of the announced tariff measures, but they clearly represented a significant risk to the global outlook at a time of sluggish growth. “It is important to avoid steps that could further harm the world economy. We appeal to the United States and its trading partners to work constructively to resolve trade tensions and reduce uncertainty,” she said.
New York-based multinational financial services firm J P Morgan raised global recession risks to 60 per cent from 40 per cent earlier after Trump announced his reciprocal tariffs. “Disruptive US policies have been recognised as the biggest risk to the global outlook all year,” JP Morgan strategists said in a note on Thursday,
The WTO DG said it was important to remember that despite these new measures, the vast majority of global trade still flows under the WTO’s Most-Favoured-Nation (MFN) terms. “Our estimates now indicate that this share currently stands at 74 per cent, down from around 80 per cent at the beginning of the year. WTO members must stand together to safeguard these gains,” she said.