IMF to Trump: US tariffs on China won't fix the trade deficit

Economists say high tariffs unlikely to reduce aggregate trade imbalances


Afp August 21, 2019
Economists say high tariffs unlikely to reduce aggregate trade imbalances. PHOTO: FILE

WASHINGTON: US tariffs on China won't fix the trade deficit, and neither will weakening the US dollar through interest rate cuts, International Monetary Fund economists said Wednesday.

In unusually blunt language, the blog post seemed targeted straight at President Donald Trump who has persistently demanded that the Federal Reserve cut interest rates to weaken the US dollar and juice the economy, while imposing round after round of tariffs on China to reduce deficit he describes as theft.

But the US policy moves are counterproductive, won't achieve the desired results, and will slow the global economy, IMF chief economist Gita Gopinath said.

"Higher bilateral tariffs are unlikely to reduce aggregate trade imbalances, as they mainly divert trade to other countries," Gopinath warned in a blog titled "Taming the Currency Hype," co-authored by fellow IMF researchers Gustavo Adler and Luis Cubeddu.

"Instead, they are likely to harm both domestic and global growth by sapping business confidence and investment and disrupting global supply chains, while raising costs for producers and consumers."

And any plans to weaken a country's own currency value "are cumbersome to implement and likely to be ineffective," they said, adding that pressure on the central bank will not achieve that goal either.

The authors warned that "one should not put too much stock in the view that easing monetary policy can weaken a country's currency enough to bring a lasting improvement in its trade balance."

"Monetary policy alone is unlikely to induce the large and persistent devaluations that are needed to bring that result ... especially within a 12-month period," they said.

With the US presidential election coming in November 2020, Trump is especially focused on the next 12 months.

Trump has slapped steep tariffs on $250 billion on Chinese goods with the remaining $300 billion in imports targeted for new duties in two more rounds, September 1 and December 15.

With the IMF and others alerting that his trade war is slowing global growth, and as warning signs of a US recession have flashed red, Trump has doubled down on his attacks on the Federal Reserve and on China. He and his advisors have been talking up the economy to counteract the increasing jitters on US financial markets.

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