IMF warns Donald Trump trade war could slash $500bn from world economy

A Donald Trump-inspired global trade war could wipe nearly $500 billion (£378 billion) off the world’s growth by 2020, the International Monetary Fund warned on Monday.

The starkest forecast yet from the organisation came in its latest World Economic Outlook, which said global expansion was “more fragile” and “under threat”.

“The risk that current trade tensions escalate further, with adverse effects on confidence, asset prices, and investment, is the greatest near-term threat to global growth,” the IMF’s chief economist Maury Obstfeld said.

Its verdict on the US president’s trade assaults said: “Our modeling suggests that if current trade policy threats are realised and business confidence falls as a result, global output could be about 0.5% below current projections by 2020.”

In April the IMF’s economic forecasts suggested overall world GDP of $97 trillion in 2020, implying a $485 billion hit to global growth.

The warning comes after the US imposed $34 billion in tariffs on Chinese goods this month and more recent threats to expand their scope to an extra $200 billion of imports including hundreds of food products as well as tobacco, chemicals, coal, steel and aluminium.

Trump is also in dispute with the European Union on trade, labelling it a “foe”, and has hit Canada and Mexico, partners in the Nafta free trade agreement, with import tariffs.

Ironically the IMF suggested today that the US could be the biggest victim of its own belligerence, adding: “As the focus of global retaliation, the United States finds a relatively high share of its exports taxed in global markets in such a broader trade conflict, and it is therefore especially vulnerable.”

Although the IMF kept its global growth forecasts unchanged at 3.9%, it predicts slower growth of 2.4% for the world’s advanced economies this year and said the “risk of worse outcomes has increased, even for the near term”.

It flagged up political uncertainties in Europe as “the terms of Brexit remain unsettled despite months of negotiation” and warned the EU faces “fundamental political challenges” on issues such as migration and the euro.

But financial markets are “broadly complacent” to the issues despite high levels of public and private debt creating “widespread vulnerability”, leaving them exposed to a sudden crash.