The World Bank has expressed growing concern over escalating trade tensions between major global economies. Deputy Chief Economist Ayhan Kose highlighted the potential worldwide economic consequences of increased trade tariffs. The global economy is poised to grow at its slowest pace in six years, primarily due to fears surrounding U.S. tariffs that could significantly impact international trade.
The United States, the world's largest importer, plays a pivotal role in global trade dynamics, accounting for approximately 40% of the $3.2 trillion in goods it imports annually. Key trading partners such as China, Mexico, and Canada represent about 40% of these imports. The World Bank has issued a warning that even a modest 10% increase in U.S. tariffs on imports from all countries could reduce global economic growth by 0.2%, assuming no retaliatory actions from other nations.
"Anytime you introduce restrictions on trade there will be adverse consequences which are most often endured by the country that introduced them," – Mr Kose
While a 0.2% reduction in growth may seem manageable, the World Bank cautioned that it would not suffice to enhance living standards in either wealthy or developing nations. The institution forecasts a 2.7% growth rate for the global economy in 2025, marking the weakest performance since 2019. This deceleration stands in stark contrast to the pre-pandemic decade when global growth exceeded 3% annually.
The World Bank's overarching mission is to promote long-term economic development, and its biggest apprehension for 2025 is the intensification of trade tensions among major economies. Tariffs, central to former President Trump's economic strategy, are perceived as tools to stimulate the U.S. economy, safeguard jobs, and augment tax revenue. However, these measures could have adverse repercussions on global economic stability.
"The bottom line is there is no ozempic for economic growth. Countries need to think about what policies to implement," – Mr Kose
Kose further emphasized that governments worldwide are grappling with various methods to invigorate economic growth, but there are no simple solutions. The World Bank underscores that careful policy consideration is paramount for nations seeking sustainable economic advancement.