By Lindsay Dunsmuir
WASHINGTON (Reuters) – The International Monetary Fund warned on Thursday that U.S. President Donald Trump’s new import tariffs threaten to undermine the global trading system, prompt retaliation by other countries and damage the U.S. economy.
“Let us not understate the macroeconomic impact,” IMF Director Christine Lagarde said, saying the tariffs will have a larger economic toll if they prompt retaliation from trading partners like Canada and Germany.
The IMF, in a review of U.S. economic policy, also took a much less optimistic view on America’s economic growth potential than that of the Trump administration.
While U.S. economic growth is expected to be strong this year and next, recent tax and spending measures could cause greater risks from 2020 onwards, the IMF said in its report.
Trump has riled key allies by pursuing protectionist trade policies, including the imposition of steel and aluminum tariffs on the European Union, Canada and Mexico.
“These measures … are likely to move the globe further away from an open, fair and rules-based trade system, with adverse effects for both the U.S. economy and for trading partners,” the Washington-based international lender said.
Trump stunned his counterparts by backing out of a joint communique agreed by Group of Seven leaders in Canada last weekend that mentioned the importance of free, fair and mutually beneficial trade.
Germany has said the EU would implement counter-measures against U.S. tariffs.
The IMF said a cycle of retaliation on trade would likely dampen national and international investment, interrupt global and regional supply chains and undermine a system that has supported U.S. growth and job creation.
The Trump administration’s trade dispute with China has also yet to be resolved. The United States is expected on Friday to unveil revisions to an initial tariff list targeting $50 billion of Chinese goods.
China on Thursday urged the United States to make a “wise choice,” saying it was ready to respond if Washington chose confrontation.
Elsewhere in its analysis, the IMF stuck to its April forecast that the U.S. economy will grow at a 2.9 percent pace in 2018.
The U.S. economy is getting a boost from the Trump administration’s tax cuts and higher government spending, but the IMF expects growth to slow considerably in coming years.
It forecasts economic growth rates over the long term of 1.7 percent while the Trump administration sees them closer to 3 percent.
U.S. Treasury Secretary Steven Mnuchin said in a statement that Washington and the IMF “differ significantly on the medium and long term projections.”
(Reporting by Lindsay Dunsmuir; Additional reporting by David Lawder and Jason Lange; Editing by Andrea Ricci and Paul Simao)