Impact of trade tensions on global growth worse than expected: IMF Lagarde

'The global economy faces a critical juncture', warns IMF chief Christine Lagarde in a blog post ahead of the G20 summit.

International Monetary Fund chief Christine Lagarde

The pace of growth for the global economy is slowing down worse than expected due to the impact of escalating trade tensions, International Monetary Fund’s chief Christine Lagarde said in relation to a report addressed for the G20 summit due to commence on Friday and Saturday.

United States (US) auto tariffs – a policy which is favoured by US President Donald Trump – if implemented, could cut three quarters of 1% off global growth, the IMF said in its report. If Mr Trump follows through on his plans to impose tariffs on auto imports from all countries except Canada and Mexico, it could lead to a retaliation from trading partners on US exports.

The IMF report noted that trade and Brexit risks “remain acute,” and the lack of certainty in the market poses problems for companies in a tightening credit condition environment.

Referring to the trade tensions between world leaders, Ms Lagarde warned in a separate blog post saying the “global economy faces a critical juncture.”

“Rising trade barriers are ultimately self-defeating for all involved. Thus, it is imperative that all countries steer clear of new trade barriers, while reversing recent tariffs," she cautioned.

Only a month ago, Ms Lagarde had warned of the dangers of the trade frictions, flagging the trade dispute between the US and China. The IMF had downgraded its forecast on the global economy for this year and next year to 3.7%, from the 3.9% prediction it had made in July.

The IMF had said that the trade war between China and US will create repercussions to growth for both countries, and they will both see a slower growth outlook for next year as compared to this year.

Trump threatens US auto tariffs to preserve US jobs

Mr Trump has been dabbling with the idea of imposing new auto import tariffs, following the recent job cuts at General Motors (GM) which saw tens of thousands of workers let go in a series of plant closures, due to stiff competition and slower sales.

Extending tariffs that are already present for foreign-built small trucks to the car sector would help local manufacturers, the US president suggests.

"The reason that the small truck business in the US is such a go to favourite is that, for many years, tariffs of 25% have been put on small trucks coming into our country," he wrote in his Twitter. "If we did that with cars coming in, many more cars would be built here."

Mr Trump was angered by GM’s decision to retrench its workers as the firm downsizes, and even threatened to cut government subsidies to the auto giant.

Responding to Mr Trump’s idea to impose auto tariffs, European Union (EU) Trade Commissioner Cecilia Malmstrom warned that the EU would follow suit with a retaliation.

"The EU has a retaliation tariffs list ready if the US imposes autos tariffs on the EU," she said on Wednesday.

The additional levies if imposed is likely to dent auto sales. Many auto makers have been imploring to the US to forgo that idea.

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