The International Monetary Fund (IMF) has issued a stark warning about a significant shift in the global economy, predicting a “new era” characterized by slower growth largely due to the tariff chaos initiated by President Donald Trump. In a recent blog post, the IMF emphasized that the established global economic framework, in place for 80 years, is undergoing a substantial reset due to escalating tariffs and resulting uncertainties.
The IMF laid out its findings, stating that the increased tariffs not only contribute to economic unpredictability but also influence global growth forecasts. By incorporating these tariffs into its World Economic Outlook (WEO) models, the agency updated its projections to anticipate global growth rates dropping to 2.8% and 3% for the current and following year, a downward revision of approximately 0.8 percentage points compared to earlier estimates.
This newly configured economic landscape could result in varied challenges for different countries, with some facing tougher choices between inflation and output. The IMF noted that without the newly imposed tariffs, global growth would have only seen a modest downgrade of 0.2 percentage points.
Other financial institutions echo the IMF’s concerns. The Institute of International Finance foresees a looming “shallow recession” in the United States, while Apollo Global Management’s Chief Economist, Torsten Sløk, warns of a 90% likelihood of a so-called Voluntary Trade Reset Recession (VTRR). He highlighted the immediate financial strain on businesses, particularly small enterprises, which find themselves burdened by tariffs upon importation of goods.
American companies are already feeling the repercussions. Mack Trucks, a major employer in Pennsylvania, is laying off hundreds due to dwindling global demand, while Volvo is considering layoffs at its U.S. facilities. Further complicating matters, DHL Express has halted deliveries to the U.S. for items valued over $800 due to tariff constraints.
Goldman Sachs has reported that Trump’s tariffs could adversely affect employment five times more than they would generate new jobs. For instance, a projected 10% increase in import taxes could potentially create 100,000 manufacturing jobs but at the cost of 500,000 jobs overall. The National Association of Manufacturers has voiced concern, stressing that high tariffs jeopardize investments, jobs, and supply chains, hampering the U.S.’s competitive edge.
Moreover, while Trump has paused some tariffs amidst market volatility, substantial trade agreements remain elusive. His negotiations with key international partners have yet to produce concrete results, including reported failures with Japan. China has also issued warnings against any compromises that might undermine its interests, promising counteractions if necessary.
As the trade standoff escalates, the Trump administration’s aggressive 145% tariff on Chinese goods has elicited stern retaliation from China, which has imposed a 125% tariff on U.S. imports. The ongoing trade turmoil raises questions about the sustainability of the current economic trajectory, leaving analysts and businesses in suspense about future developments.
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