IMF says US will be hardest hit by its own tariffs as growth forecasts slashed

* The world’s two biggest economies are now locked in a trade war unlike anything we’ve seen for decades — this could get awkward

* President Trump seems to believe tariffs can be used to reduce China’s global influence or at least check its rise

* The IMF concludes that tariffs will do none of these things in the short-term but will inflict immense economic damage to the United States and many other countries with which it trades

By Joel Hills, Business & Economics Editor, ITV News

President Donald Trump already holds a dim view of the International Monetary Fund — so much so, he’s reportedly considering pulling the United States out altogether.

And yet, Tuesday morning, just a short walk from the White House, the IMF released its latest assessment of the global economy. It’s a verdict Trump is unlikely to welcome — or accept.

Donald Trump argues tariffs on US imports will raise significant sum of money that can be used to fund tax cuts for Americans; he claims tariffs will revive American manufacturing, causing jobs and factories “to come roaring back”; and he seems to believe tariffs can be used to reduce China’s global influence or at least check its rise.

The IMF concludes that tariffs will do none of these things in the short-term but will inflict immense economic damage to the United States and many other countries with which it trades.

In its World Economic Outlook, the IMF argues that the trade war President Trump has unleashed and the disorientation he has created will cause economic growth to wilt around the world, this year and next.

“The global economic system under which most countries have operated for the last 80 years is being reset, ushering the world into a new era” says Pierre-Olivier Gourinchas, the IMF’s chief economist.

Thus far, the new era is one of chaos and confusion. Gourinchas puts it more diplomatically, “existing rules are challenged while new ones are yet to emerge”.

Trump has hiked the effective tariff rate on US imports to the highest level in a century, global tariffs are also rising as other countries respond.

These taxes will hit exports, investment and jobs around the world. The IMF believes the wider sense of extreme uncertainty will prompt businesses to cut spending and banks to lend more cautiously and that few countries will be unaffected.

The IMF has downgraded its growth forecasts for 2025 for France (by 0.2%), Germany (by 0.3%), Japan (by 0.5%), the UK (by 0.5%), China (by 0.6%) and Canada (by 0.6%).

The downgrade to US growth (0.9%) is even bigger. The IMF still thinks the US will be the fastest growing economy in the G7 this year but the gap with other countries is narrowing.

Trump inherited an economy on a roll, now America’s central bank publicly worries about resurgent inflation and a possible recession and the IMF believes momentum is fading.

The IMF’s forecasts are based on the state-of-play on April 4th. Trump has since reduced tariffs on most countries but retained a 10% baseline for everyone and escalated the conflict with China.

The world’s two biggest economies are now locked in a trade war unlike anything we’ve seen for decades and Gourinchas says: “Despite the slowdown, global growth remains well above recession levels.

It’s a fair point. This isn’t a catastrophe yet but it does feel like a crisis and only Trump knows where the world goes from here.

A sudden outbreak of harmony is possible, equally hostilities may intensify and a global downturn could loom into view.

It’s too soon to see the harm that tariffs cause because the escalation has been too recent but, as Michael Saunders, a former member of the Bank of England Monetary Policy Committee, put it last week “Storm Donald is on the way”.

The IMF thinks tariffs will push up the headline annual rate of inflation in the US by 1%. Elsewhere in the world, the UK included, it assumes the pressure on prices will be downwards, as Chinese goods, intended for America, are diverted to new markets.

The IMF warns that central banks may need to adjust interest rates and that governments with high levels of debt, low growth and rising financial costs — like the UK — may find themselves forced to raise taxes or cut spending, particularly if they find themselves needing to increase funding for defence.

There are other risks too. Financial markets could get twitchy again and the IMF hints at significant jeopardy for the US.

The dollar is the world’s currency of choice. Central banks and other financial institution hold substantial quantities of dollars, the dollar is used for most international transactions, due in large part to the size of US economy and its perceived stability.

The dollar’s ‘reserve currency’ status allows the US to run large trade deficits without immediate repercussions, it enables the government to borrow at lower rates and while a strong dollar makes US exporters less attractive, it also reduces the cost of imports and therefore prices for US households.

“Greater policy uncertainty, dimmer US growth prospects, and an adjustment in global demand for dollar assets — that has so far been orderly — can weigh down on the dollar,” says Gourinchas.

“In the medium term, the dollar may depreciate in real terms if the tariffs translate into lower productivity in the US.”

This reads a little like a warning. The IMF urges “prudence and improved collaboration”. These are not the instincts you’d associate with Donald Trump.

As the US retreats from free-trade, the IMF continues to make the case for it, as a means of “raising living standards for all”. The IMF believes the world trading system that we’ve had for the last 80 years — open to trade and open to capital markets — has been enormously beneficial, not least to the US which has emerged as the world’s most powerful economy.

The problem, as the IMF sees it, is that globalisation fostered “rapid but uneven growth”. Put another way, if many Americans feel the economy hasn’t delivered for them, it’s not because the US economy has done badly but because the gains have been narrowly shared.

In many ways, that has been a political choice and it not one that Trump is seeking to change. Gourinchas notes “an acute perception that globalisation unfairly displaced many domestic manufacturing jobs”.

He concedes the grievance “has some merit” but it insists “technological progress and automation” were the real drivers and that there was a political failure to support individuals and communities who were on the receiving end of job losses as factories closed.

In Gourchinas’s words, “[the failure pushed] many to embrace a zero-sum world view whereby the gains of some only come at the expense of others”.

President Trump exudes confidence, and his supporters trust that he knows something most economists don’t — but the IMF’s verdict is stark: it believes the president is inflicting serious damage on his own country’s prosperity.