Christine Lagarde: World trade system in danger of being torn apart

The head of the International Monetary Fund has warned of “darker clouds looming” for the global economy amid simmering trade tensions between the US and China, urging governments around the world to steer clear of protectionism or face negative consequences.


Christine Lagarde said the current system for world trade was “in danger of being torn apart”, with the potential to upset the present global economic upswing and make consumers poorer.

Speaking in Hong Kong amid signs the standoff could be abating, Lagarde said it would be an “inexcusable, collective policy failure” for world trade to break down with nations erecting punitive tariff systems against their rivals.

“Let us redouble our efforts to reduce trade barriers and resolve disagreements without using exceptional measures,” she said.

Her comments come after Donald Trump threatened $150bn (£106bn) of import tariffs on Chinese goods arriving in America, in response to what he said were “unfair” trading practices used by the communist nation. The US has a trade deficit worth $375bn with China.

Beijing threatened to retaliate with its own tariffs on US imports, although both Trump and the Chinese president Xi Jinping have since moved to diffuse tensions. Wall Street rallied on Tuesday after Xi said he would continue opening the Chinese economy and lower some import tariffs.

However, the standoff is still likely to dominate the agenda at the IMF’s spring meeting in Washington next week, when world leaders and central bankers are due to gather to discuss the state of the world economy.

Using language that could be interpreted as a veiled attack on Trump in the speech ahead of the meeting, Lagarde said nations could make domestic policy changes to address trade imbalances and use international forums to settle disputes. “We can all do more - but we cannot do it alone,” she said.

“Unfair trade practices have little impact on a country’s overall trade deficit with the rest of the world. That imbalance is driven by the fact that a country spends above its income.”

Identifying the US as an example of a nation that could benefit from reforms, she said Washington could help tackle its trade imbalances by gradually curbing public spending and by increasing revenue, which she said would help reduce future fiscal deficits.

Lagarde has been critical of Trump’s economic decision-making before. Earlier this year at Davos, speaking shortly after the president addressed the gathering of the world’s elite, she warned that his tax cuts could pose a threat to the stability of the world economy.

While forecasting continued strength for the global economy this year and next, she said on Wednesday that growth could then falter as stimulus from the tax cuts fades and central banks raise interest rates.