IMF urges ’stable trade environment’ following latest US tariffs By Investing.com
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Diverging Reports Breakdown
IMF says new US tariffs keep trade uncertainty running high
U.S. President Donald Trump expanded a global trade war with a new 50% tariff on U.S copper imports and a 50% duty on goods from Brazil. The IMF said it would offer more details when it releases an update to its April World Economic Outlook in late July, ahead of the new August 1 deadline for trade negotiations. Economists say uncertainty remains high and higher tariffs will bite harder in the second half of the year.
WASHINGTON (Reuters) -The IMF said on Thursday it was closely monitoring the latest U.S. tariffs announcements, saying uncertainty about the global economic outlook remained high and urged countries to work constructively to facilitate a stable trade environment.
The IMF said it would offer more details when it releases an update to its April World Economic Outlook in late July, ahead of the new August 1 deadline for trade negotiations.
U.S. President Donald Trump on Wednesday expanded a global trade war with a new 50% tariff on U.S. copper imports and a 50% duty on goods from Brazil, both to start on August 1. He also announced higher tariffs for 21 other countries.
“Trade-related developments are evolving and uncertainty remains high,” an IMF spokesperson said in response to a query from Reuters. “Countries should continue to work constructively to facilitate a stable trade environment, and address shared challenges.”
Worries over future U.S. tariffs are clouding the outlook for factories across much of the United States, Asia and Europe, according to surveys released on Tuesday, although they showed some were able to shrug off the uncertainty and keep growing.
Analysts said the underlying softness in surveys highlights the challenges facing businesses and policymakers as they try to navigate Trump’s moves to shake up the global trade order.
Trump administration officials argue that tariffs imposed thus far have not fueled inflation, and say a tax-cut law approved last week will more than offset any temporary negative impact from the additional duties being imposed on trade.
The IMF in April slashed its growth forecasts for the United States, China and most countries, citing the impact of U.S. tariffs now at 100-year highs and warning that rising trade tensions would further slow growth.
Economic activity has increased since then amid stockpiling ahead of tariffs, and the U.S. and China have backed off steep reciprocal tariffs, which could point to a slight – if temporary – upward revision. Economists say uncertainty remains high and higher tariffs will bite harder in the second half of the year.
(Reporting by Andrea Shalal; editing by Diane Craft)
Former Fed governor Warsh blasts US central bank for leaving its lane
The U.S. Federal Reserve has been criticized for its lack of independence. The central bank has been under pressure from Congress to cut interest rates. The Fed is also under pressure to make changes to the way it manages the economy. It has been accused of overstepping its remit and over-reacting to the financial crisis of 2008-2009. It is also being criticized for over-reliance on the use of the central bank to make economic decisions. The U.N. has called on the Fed to take more control of its operations.
WASHINGTON (Reuters) -Former Federal Reserve Governor Kevin Warsh, with whom President Donald Trump is reported to have discussed firing U.S. central bank chief Jerome Powell and installing him in his place, on Friday unleashed a barrage of criticism of the Fed and argued for fundamental changes to how it operates.
In a speech full of long-standing criticisms but short on specifics for what he would do differently, Warsh said he believes in the Fed’s “operational independence” but argued it has gone beyond its remit and undermined its claims to independence.
“Independence is reflexively declared, all too often in my view, when the Fed is criticized,” he told a conference in Washington organized by the Group of Thirty, an international body of financiers and academics.
He urged the Fed to stop relying on “stale” government data, subject to revision, to guide its decisions, and on letting the public know policymakers’ economic forecasts and where they believe interest rates may be headed.
“Fed leaders would be well-served to skip opportunities to share their latest musings,” Warsh told the group, which included former and current central bankers from around the world who were in Washington to attend the spring meetings of the International Monetary Fund and World Bank.
“Forward-guidance – a tool rolled out to great fanfare in the financial crisis – has little role to play in normal times.”
Warsh, a Republican who served in former President George W. Bush’s administration and previously worked for Morgan Stanley, also blamed the central bank for aiding the expansion of the U.S. national debt, for making forays into areas outside monetary policy, and for mistakes that he said allowed inflation to surge after the COVID-19 pandemic.
“The more the Fed opines on matters outside of its remit, the more it jeopardizes its ability to ensure stable prices and full employment, and the more vulnerable it becomes to the body politic,” he said. “Each time the Fed jumps into action, the more it expands its size and scope, encroaching further on other macroeconomic domains,” encouraging misallocation of capital, increasing the risk of future shocks, and compelling the Fed to act even more aggressively.
NERVOUS MARKETS
Trump has repeatedly criticized Powell for not cutting interest rates since the Republican president took office in January. His escalating rhetoric against the Fed chief, along with hints he might try to remove him, triggered on Monday a selloff on financial markets already under pressure from fears that Trump’s sweeping tariffs could send the U.S. economy into a recession.
IMF urges Sri Lanka to promote investment, diversify exports amid tariff uncertainty
IMF says Sri Lanka must focus on diversifying its export markets and creating an investment-friendly environment to maintain stability and growth. Krishna Srinivasan, Director of the Asia and Pacific Department, highlighted the complexity added by recent developments in Sri Lanka. He noted that tariffs have a particularly significant impact on Sri Lanka’s key industries. “The broader question is that this is a country which is affected by huge tariffs,” he said. ‘The time is ripe for Sri Lanka to embark on broader structural reforms, which will promote private investment and get growth going on a more durable basis’
Speaking at the 2025 Spring Meetings of the World Bank Group and the IMF Thursday (24), Krishna Srinivasan, Director of the Asia and Pacific Department, highlighted the complexity added by recent developments in Sri Lanka.
“You know, talking about uncertainty, which the MD mentioned this morning, as you just talked about, the team was in Sri Lanka not too long ago, and they were in the midst of having discussions with the authorities when these tariffs were announced,” Srinivasan said during the Regional Economic Outlook – Asia and Pacific session”, he added.
“So, for the team, it became quite difficult to put together a macro framework, which takes into account the tariffs and the implications they have on growth, on exports, and so on and so forth. So that was an example of how uncertainty can affect just operations with countries. So, the team is back here, and we’ve continued discussions with the authorities.”
He noted that tariffs have a particularly significant impact on Sri Lanka’s key industries. “The broader question is that this is a country which is affected by huge tariffs. There’s a garment sector, there are a lot of the impact on the garment sector could be quite significant. And there are other sectors also here. So the question, of course, is for countries like not just Sri Lanka, but all countries, they need to think in terms of diversification of our export markets, greater integration within the region, all these things can help diversify, can actually help you mitigate the risks which come with tariffs from one country.”
On investment, Srinivasan emphasized the importance of supporting domestic activity without compromising fiscal discipline. “Going beyond that, I think in the case of Sri Lanka, investment can still be propped up. Again, we would say when we say investment, create the environment for domestic investment to pick up, not necessarily through tax exemption incentives, keep your fiscal consolidation, keep your fiscal integrity intact, but promote investment by providing an environment where private investment can flourish.”
He also acknowledged the progress made under the current IMF programme. “The programme has led to a significant amount of macro stability, which has led to growth picking up, inflation coming down. So the time is ripe for Sri Lanka to embark on broader structural reforms, which will promote private investment and get growth going on a more durable basis.”
Global economy at a crossroads: Trade tariffs could impact future growth
The global economic system under which most countries have operated for the last 80 years is being reset, says the IMF. The impact of tariffs varies substantially across countries, the IMF says. Emerging market economies face varying prospects depending on where tariffs ultimately settle. The IMF offers several recommendations for navigating this uncertain environment:Restore trade stability: The first priority should be to forge mutually beneficial trade arrangements that create a clear, predictable trading system that addresses gaps in international rules. Increased financial market reactions and tightening. conditions could dominate in the short term, as reflected in the sharp decline in oil prices following tariff announcements following the U.S. announcement. The global economic landscape is undergoing a profound transformation, according to a newly released report from the International Monetary Fund (IMF) The analysis paints a sobering picture of a world economy navigating through rising trade tensions and policy uncertainty. The latest IMF report highlights several key mechanisms through which tariffs and trade tensions affect the global economy:Global supply chain magnification: Most traded goods are intermediate inputs that cross borders multiple times before becoming final products. Disruptions can propagate throughout global input-output networks with potentially large multiplier effects.
The global economic landscape is undergoing a profound transformation, according to a newly released report from the International Monetary Fund (IMF). The analysis, authored by IMF chief economist Pierre-Olivier Gourinchas, paints a sobering picture of a world economy navigating through rising trade tensions and policy uncertainty.
Resetting economic systems
Since late January 2025, a spate of tariff announcements from the U.S. has dramatically altered the global trade environment. What began with targeted tariffs against certain countries (such as Canada, China and Mexico) and in critical sectors culminated in near-universal levies. The impact has been immediate and severe – U.S. effective tariff rates have surged past levels not seen since the Great Depression, while retaliatory measures from major trading partners have significantly pushed up global tariff rates.
“The global economic system under which most countries have operated for the last 80 years is being reset, ushering the world into a new era,” said Gourinchas. “Existing rules are challenged while new ones are yet to emerge.”
This abrupt shift has created what the IMF terms “epistemic uncertainty” – a fundamental unpredictability about the rules governing global trade – which has become a major driver of the economic outlook. The resulting forecasts reflect this complexity, with the IMF presenting multiple scenarios based on different potential developments in trade policy.
Read: IMF cuts MENA 2025 growth forecast to 2.6 percent as global policy uncertainty looms
Growth projections downgraded
The IMF’s reference forecast, which includes tariff announcements between February 1 and April 4 by the U.S. and countermeasures by other countries, shows global growth declining to 2.8 percent in 2025 and 3 percent in 2026. This represents a cumulative downgrade of approximately 0.8 percentage points compared to the January 2025 World Economic Outlook update.
Had the April tariffs not been implemented, the IMF estimates that global growth would have experienced only a modest cumulative downgrade of 0.2 percentage points, reaching 3.2 percent for both 2025 and 2026. This stark difference underscores the significant economic cost of escalating trade tensions. Despite the slowdown, global growth remains above recession levels.
However, global trade growth is projected to dip more than output, falling to just 1.7 percent in 2025 – a significant downward revision from previous forecasts.
Uneven impact across markets
The impact of tariffs varies substantially across countries. For the U.S., which has implemented the tariffs, the result is a negative supply shock. The IMF has lowered its US growth estimate for 2025
to 1.8 percent – 0.9 percentage points lower than January projections, with tariffs accounting for 0.4 percentage points of that reduction. US inflation forecasts have also been raised by about 1 percentage point, up from 2 percent. For trading partners, tariffs primarily represent a negative demand shock.
China’s growth forecast for 2025 has been cut to 4 percent, a 0.6 percentage point reduction, while inflation estimates have been revised downward by about 0.8 percentage points. The euro area, facing relatively lower effective tariffs, has seen its growth forecast revised down by 0.2 percentage points to 0.8 percent.
The IMF notes that both China and the euro area will benefit from stronger fiscal stimulus this year and next, providing some economic support. Emerging market economies face varying prospects depending on where tariffs ultimately settle, with the IMF lowering its overall growth forecast for this group by 0.5 percentage points to 3.7 percent for 2025.
Complex economic mechanisms at work
The latest IMF report highlights several key mechanisms through which tariffs and trade tensions affect the global economy:
Global supply chain magnification: Most traded goods are intermediate inputs that cross borders multiple times before becoming final products. Disruptions can propagate throughout global input-output networks with potentially large multiplier effects. Investment hesitation: Companies facing uncertain market access are likely to pause investments and reduce spending, while financial institutions reassess borrowers’ exposure to trade disruption. Exchange rate complexity: The effect on exchange rates is multifaceted. While the US, as the tariffing country, might see currency appreciation as in previous episodes, factors such as policy uncertainty and dimmer growth prospects could weigh on the dollar. Financial market reactions: Increased uncertainty and tightening financial conditions could dominate in the short term, as reflected in the sharp decline in oil prices following tariff announcements.
Policy recommendations for a fragile economy
The IMF offers several recommendations for navigating this uncertain environment:
Restore trade policy stability: The first priority should be to forge mutually beneficial trade arrangements and create a clear, predictable trading system that addresses longstanding gaps in international rules. Adaptive monetary policy: Central banks must remain agile, with some countries potentially facing steeper trade-offs between inflation and output. Those encountering resurgent price pressures will require forceful monetary tightening, while others experiencing negative demand shocks may need to lower policy rates. Fiscal prudence: With high debt, low growth, and rising financial costs, most countries need to implement gradual and credible fiscal consolidation plans. Support for those affected by economic dislocation should remain narrowly targeted with automatic sunset clauses. Growth-oriented reforms:
Governments should continue fiscal and structural reforms that mobilize private resources and reduce resource misallocation, while investing in digital infrastructure and training necessary to benefit from technologies like artificial intelligence.
Tough choices to be made
The report concludes with a call for policymakers to think beyond “winners” and “losers” in globalization. Gourinchas noted that while there is merit to grievances about job displacement in advanced economies, the deeper force behind manufacturing employment decline is technological progress and automation, not globalization. In both trade surplus countries like Germany and deficit countries like the U.S., manufacturing output share has remained stable even as employment has declined.
“Global integration is not an objective in and of itself,” Gourinchas emphasized. “It is a means to an end, important insofar as it supports improved living standards for all.”
The IMF’s analysis makes clear that how nations respond to this pivotal moment will determine whether the global economy can navigate through current tensions toward renewed cooperation, or whether it faces a more fragmented and less prosperous future.
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U.S. Calls for Sweeping Reforms to I.M.F. and World Bank
Treasury Secretary Scott Bessent says the U.S. remains committed to the I.M.F. and the World Bank. The comments come at a moment of concern among policymakers. The I.A.C.E. downgraded its outlook for growth globally and in the United States.
The comments, at a speech on the sidelines of the spring meetings of the I.M.F. and the World Bank, come at a moment of concern among policymakers that the Trump administration could withdraw the United States entirely from the fund and the bank.
The United States has upended the global trading system in recent months, and the views of the Trump administration on climate change, international development and economic equity are often at odds with those of the other nations that are shareholders in the global institutions.
On Tuesday, the I.M.F. downgraded its outlook for growth globally and in the United States as a result of President Trump’s punishing tariffs. Trade tension between the United States and China, the world’s largest economies, threaten to weigh on output this year and next.