The International Monetary Fund (IMF) has issued a warning that trade tariffs proposed by U.S. presidential candidate Donald Trump could harm the global economy. This comes as the IMF improved its forecast for the UK economy, predicting better growth than expected earlier this year. However, despite this good news for the UK, the IMF remains concerned about the potential impact of trade wars that might arise from Trump’s proposed tariffs.

What Are Trade Tariffs?

Trade tariffs are taxes imposed on imported goods. These are designed to make foreign products more expensive, encouraging people to buy locally made goods instead. However, when countries start imposing tariffs on each other’s goods, it can trigger what’s called a “trade war.” This can hurt not only the countries involved but also the wider global economy.

The IMF’s Concerns

According to the IMF, these tariffs could trigger a chain reaction, leading to tit-for-tat trade wars. When one country imposes tariffs, other countries often respond by doing the same. This can reduce international trade, make goods more expensive for consumers, and slow down economic growth worldwide.

Pierre-Olivier Gourinchas, the IMF’s chief economist, explained: “We are very concerned about the direction of these trade measures. They are self-centered and could hurt not just the global economy but also the countries that implement them.”

In other words, the very countries that introduce tariffs might end up making their own economies weaker.

Tariffs on the Rise

Over the last five years, there has been a sharp rise in the number of trade-distorting measures, such as tariffs. The number of these measures has tripled, going from 1,000 in 2019 to 3,000 today. If new tariffs are added, it could make things even worse.

The IMF is currently forecasting a global economic growth rate of 3.2% for both this year and next. But, if significant new tariffs are imposed by mid-2025, it could cut global output by 0.8% in 2025 and by 1.3% in 2026. This would mean less economic growth, fewer jobs, and higher prices for people around the world.

Trump’s Tariff Plan

As Donald Trump gears up for the U.S. presidential election, he has made it clear that imposing tariffs will be a major part of his economic policy. He plans to target imported goods, especially from China, but goods from the European Union could also be in his sights. Trump believes that these tariffs will protect American jobs and industries, but many experts, including the IMF, disagree.

Christine Lagarde, the president of the European Central Bank, voiced her concerns, saying that the U.S. has always done better during periods of free trade, not when it turns inward and isolates itself with tariffs.

U.S. Treasury Secretary Janet Yellen also chimed in, calling the broad tariffs a “misguided approach” that would hurt both consumers and businesses that rely on exports.

The UK’s Brighter Outlook

In the midst of this global uncertainty, the IMF had some positive news for the UK. It upgraded the country’s growth forecast for 2024 from 0.7% to 1.1%. This is good news for the UK government, as it prepares to release its first budget next week. UK Chancellor Rachel Reeves will likely see this as a boost to her economic plans.

The UK’s economy is expected to grow faster than previously thought, largely because of the strength of its services sector, such as banking and tourism. In contrast, countries that rely more on manufacturing, like Germany, are struggling. The IMF predicts that UK growth will continue to rise to 1.5% by 2025, as inflation falls and interest rates come down, stimulating demand.

A Word of Caution

However, the IMF warned that countries like the UK must be careful. Pierre-Olivier Gourinchas emphasized that while UK growth is improving, the country is walking a “narrow path.” High levels of national debt, combined with interest rates that remain relatively high, could quickly lead to economic trouble if things don’t go according to plan.

Gourinchas pointed out that managing debt while trying to boost public investment is tricky. It’s a delicate balancing act, and if not handled carefully, things could spiral out of control.

The Global Economy: Resilient But Vulnerable

The IMF also touched on the broader global economic situation, noting that despite challenges like inflation, the world economy has shown surprising resilience. Over the past two years, central banks have raised interest rates to control inflation, which helped avoid a full-blown global recession. Gourinchas praised this achievement, saying that monetary policy has played a key role in keeping inflation in check and preventing wage-price spirals that could have worsened the situation.

Looking ahead, though, there is still uncertainty. While inflation is coming down, the global economy remains vulnerable to shocks, such as trade wars, high debt levels, or further disruptions caused by rising interest rates.

A Global Gamble

The IMF’s report highlights the risks associated with trade tariffs and the potential impact on the global economy. While some countries, like the UK, may see better-than-expected growth, others may face difficulties if trade wars escalate. The big takeaway? Tariffs might seem like a quick fix, but in reality, they could hurt both the countries that impose them and the global economy as a whole.

As Donald Trump prepares for the U.S. presidential election, his tariff plans are raising alarm bells around the world. Whether or not these plans come to fruition, one thing is clear: the global economy is interconnected, and actions taken by one country can have far-reaching consequences for everyone.