The recent announcements by the US and China to impose import tariffs against each other is more of a "phony" trade war at this point, the IMF said today but cautioned that the world would be impacted if it turns into a cycle of widespread actions and counteractions.
In March this year, the US imposed a 25 per cent tariff on steel imports from China and many other nations. Beijing responded by imposing tariffs on US imports worth around USD 3 billion. This escalated to the point that Trump ultimately threatened to impose new tariffs on USD 150 billion of Chinese goods.
"I am not sure anyone has a formal definition of trade war. It is certainly the case that shots have been fired and negotiations are going on on a largely bilateral basis," said Maurice Obstfeld, Economic Counsellor and Director of the Research Department at the IMF.
"You know, at this point, although some warning shots have been fired, it is more of a phony war," Obstfeld said.
"But, again, no formal definition. I think if we get into a cycle of very widespread actions and counteractions, we would begin to see significant economic effects, and that would be, whether you call it a trade war or not, would be very worrisome," the top IMF official said.
Obstfeld said that the prospect of trade restrictions and counter-restrictions threatens to undermine confidence and derail growth prematurely.
"While some governments are, indeed, pursuing substantial economic reforms, trade disputes risk diverting others from the constructive steps they would need to take now to improve and secure growth prospects," he said.
Obstfeld said the recent intensification of trade tensions started in early March with the United States' announcement of its intent to levy steel and aluminum tariffs for national security reasons.
"The announcement has fed into several bilateral negotiations, aimed at reducing US trade deficits with individual trade partners," he said.
He said nations must proceed in a collaborative way, rather than in a conflictual way "because that will, ultimately, be in everyone's interests".
"There are not going to be any winners coming out of a trade war," Obstfeld said.
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