Trump’s tariff war with China would weaken global economy, create uncertainties

The global economies will slow significantly due to the uncertainty created by the ongoing tariff war between the United States’ and China, the International Monetary Fund said Tuesday.

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The IMF said that the global economy will grow just 2.8 per cent this year, down from its forecast in January of 3.3 per cent.

According to its latest World Economic Outlook, in 2026, global growth will be 3 per cent below its previous 3.3 per cent estimate.

The IMF said the world’s two largest economies, China and the United States, would weaken as the US economic growth will come in at just 1.8 per cent this year, down from its previous forecast of 2.7 per cent.

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China is now projected to expand 4 per cent, down roughly half a point from its previous forecasts.

The forecasts cast a gloomy shadow over the future of other fragile economies of the world, especially in Africa and other developing countries, where leaders are caught in the middle of the tariff war between the world’s two largest economies.

Every country in the world is affected by the tariff war, as hikes in US import taxes have now lifted average US duties to about 25 per cent, the highest in a century.

Pierre-Olivier Gourinchas, IMF’s chief economist, said that the heightened uncertainty caused by the import taxes led the IMF to take the unusual step of preparing different forecasts.

“The surge in policy uncertainty is a major driver of the economic outlook. If sustained, the increase in trade tensions and uncertainty will slow global growth significantly, reflecting this complexity.

“Our report presents a reference forecast which incorporates policy announcements up to April 4th by the U.S. and trading partners. Under this reference, forecast, global growth will reach 2.8 per cent this year and 3 per cent next year. A cumulative downgrade of about 0.8 percentage point relative to our January 2025,” he added.

With geopolitical conflict, increasing trade tensions, and leadership changes in major economies around the world, the fund said there is considerable uncertainty.

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“The global economy needs a clear, stable and predictable trading environment, one that addresses some of the longstanding gaps in international trading rules. Monetary policy will need to remain agile and respond by tightening where inflation pressures reemerge, while easing where weak demand dominates. Monetary policy credibility will be key, especially where inflation expectations meet the anchor and central bank independence remains a cornerstone,” said Mr Gourinchas.

With all the uncertainty, it is important for policy makers to make structural reforms and pursue multilateral cooperation that will boost growth, the report said, adding that part of that is tackling inflation, so central banks must be in a position to make data-dependent decisions and protect their independence.

The IMF also cautioned that some financial institutions could come under strain in volatile markets.