The trade war between the United States and China could cut world economic growth next year, the International Monetary Fund (IMF) warned Wednesday.
IMF Managing Director Christine Lagarde said U.S. President Donald Trump’s threat to tax all trade between the two countries would shrink the global Gross Domestic Product (GDP) by one-half of one percent.
This amounts to a loss of about about $455 billion, larger than the size of South Africa’s economy,” Lagarde said in a briefing note for the Group of Twenty (G-20), a collection of the world’s largest advanced and emerging economies. “These are self-inflicted wounds that must be avoided… by removing the recently implemented traded barriers and by avoiding further barriers in whatever form,” she added.
The warning came as G-20 finance ministers and central bankers prepare to meet in Japan this weekend. They will gather just weeks after U.S.-China talks collapsed amid claims of broken promises and another round of punishing tariffs.
Lagarde urged governments to adopt policies that support economic growth to avoid a global economic decline. “Should growth substantially disappoint,” she wrote, policymakers must do more, including “making use of conventional and unconventional monetary policy and fiscal stimulus.”
The GDP is a monetary measure of the value of all goods and services produced in an economy during a specific period of time.