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The IMF examined the implications of the introduction of trade tariffs

23.07.2018
Economy

The crisis of trust between the participants in world trade can have a more negative impact on the world economy than the direct introduction of duties, experts of the International Monetary Fund (IMF) estimated in an analytical report prepared for the meeting of finance ministers and heads of central banks of G20 member countries in Buenos Aires.
The maximum losses in this case will be 0.4-0.5% of world GDP per year, while even a sharp expansion of the duties will lead to a 0.1% growth slowdown.

The experts' calculations are based on the IMF macroeconomic dynamic model, which covers six economies and groups of countries - the US, Japan, the euro area, developing countries, Latin America and the rest of the world. The first scenario takes into account only the restrictions that have already been entered. Recall that the US imposed import duties on steel and aluminum on duties of 25% and 10%, respectively, and imposed a tariff of 25% on supplies from China for $ 50 billion. The forecast allows for reciprocal equivalent measures of all affected parties with respect to US exports (RF and PRC they have already been entered). According to the IMF calculations, in this case, a statistically significant slowdown in GDP growth will occur in the US and developing countries - by about 0.1 percentage points, while Japan and the euro area may even add the same growth of 0.1 pp in growth.

The second scenario envisages the introduction of additional tariffs of 10% on supplies from China to the US for $ 200 billion (this was announced by US President Donald Trump) and the Chinese side's response. These restrictions may slow the GDP growth of developing countries by 0.3 percentage points, while the growth in the US may be lower by 0.2 pp. However, other regions in the first years after the introduction of such measures can accelerate economic growth due to substitution American and Chinese goods - the countries of the euro area and Latin America can get an increase to 0.1 percentage points of GDP, Japan - up 0.2 pp. But the scenario does not take into account the elasticity of substitution of goods from the US and China, a more complex model can to record deterioration in macroeconomic dynamics for all regions,

The third scenario is complemented by the second 25 percent tariffs for car supplies to the United States and the response of all affected parties. In this case, in the first year, the growth in the US may be lower by almost 0.6 percentage points, and in Latin America - by 0.1-0.2 percentage points. Other countries will slightly increase in growth, but long-term it will still give way to a slowdown.

Finally, the fourth scenario is a temporary global crisis of confidence between participants in international trade - while the IMF expects a sharp increase in the risk premium and the subsequent decline in investment, consumption and production. World GDP in this case will slow by 0.4 pp in the first year and 0.5 percentage points in the following. The largest loss of growth in the IMF predicts for the US - 0.9 pp, Latin America, Japan and developing countries may be missing 0.6-0.7 percentage points of growth in economies. IMF experts note that the scenario can underestimate the potential effect of such a development of events, since it does not take into account the possible reaction of central banks.

Although in the end all countries will suffer from the trade conflict, the US economy is especially vulnerable in the current situation, they conclude at the IMF and recommend "to leave tariffs and mirror answers in the past", and instead think about the need to address the problem of intellectual property rights and the conclusion of innovative agreements on electronic commerce and digital services.