IMF’s Lagarde: Nobody wins a trade war

Following US President Donald Trump‘s decision to impose tariffs across the board on steel and aluminum, International Monetary Fund Managing Director Christine Lagarde on Wednesday highlighted that no one emerges victorious from a trade war and emphasizing the negative economic impact of such a decision.

Trump said on Thursday that the United States would apply duties of 25 pct on imported steel and 10 pct on aluminum to protect US producers, although White House officials later said some details still needed to be ironed out. On Friday, in a tweet he mentioned that “trade wars are good and easy to win” prompting a response by the head of the IMF.

Lagarde said that “the macro-economic impact would be serious, not only if the United States took action, but especially if other countries were to retaliate, notably those who would be most affected, such as Canada, Europe, and Germany in particular”, after Trump warned the EU that it would hit it with a “big tax” for not treating well the US when it comes to trade.

Lagarde also added that in a trade war, driven by reciprocal increases of import tariffs, nobody wins, one generally finds losers on both sides but  indicated that Trump might have a case for threatening tariffs, saying there were “a few good reasons” to protest against the current situation.

Nevertheless, she supported the repeated position of the IMF that international trade an engine for growth, innovation and competitiveness and cautioned that any threat to trade was risky for world growth and as such warned that the impact on growth would be formidable.

The US’ partners did not take Trump’s announcement very well. The European Commission president, Jean-Claude Juncker, warned there would be consequences for the US if Trump’s threat of a 25% tariff on steel and 10% on aluminium imports takes effect, and that he should expect retaliatory strikes against American icons like Harley-Davidson, Levi’s jeans and Kentucky bourbon, if he sparks a trade war by going ahead with punitive US tariffs on foreign steel.

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