The International Monetary Fund (IMF) has issued a stark warning regarding the potential global repercussions of the economic policies promoted by former U.S. President Donald Trump. In its twice-yearly forecast for the world economy, the IMF highlighted risks associated with Trump's threatened tariffs, which could exacerbate trade tensions and disrupt global supply chains. The World Bank echoed these concerns, noting that U.S. tariffs could lead to depressed global growth in the upcoming year.
Trump's aggressive tariff strategy targets several countries, including China, Mexico, and Canada. He has also proposed imposing 100% tariffs on the BRICS bloc of nine nations should they attempt to establish a currency competing with the U.S. dollar. Such moves could lower investment, distort trade flows, and affect market pricing. According to the IMF, these policies might initially boost the U.S. economy through measures like tax cuts and deregulation. However, this short-term gain may come at a high cost, potentially increasing inflation and reducing the country's long-term economic output.
The IMF predicts that the global growth rate will slow to 2.7% in 2025, marking the weakest performance since 2019, aside from the Covid-19 pandemic's peak contraction. This outlook is shared by the World Bank, which also projects a similar slowdown in global economic activity. The impact of Trump's policies may further weaken U.S. Treasury bonds' standing as a reliable global safe asset, heightening financial instability worldwide.
"Weaken the role of US Treasuries as the global safe asset" – IMF
Investors consider U.S. Treasury securities among the safest investments available. However, if Trump's economic measures lead to an inflationary boom followed by a bust, this perception could change drastically. The IMF cautions that such a scenario would undermine the stability of U.S. Treasuries, traditionally viewed as a cornerstone of global financial security.
During his prior administration, Trump's trade confrontations with China resulted in reciprocal tariffs involving the European Union as well. These actions set a precedence that may see a resurgence as Trump considers reimplementing similar strategies. The IMF underscores the risks of an inflationary boom that might be followed by an economic downturn, stressing the potential long-term implications for both domestic and international markets.