The Specter of Tariff Battles Spooks the IMF

What’s Happening: The International Monetary Fund (IMF) and World Bank met in Washington, D.C. last week to discuss global economic issues and publish their growth outlook for 2024 and beyond. The theme of the talks can be summed up in one word: uncertainty. There are many unknowns as the year draws to a close, ranging from the trade policy implications of the U.S. election to growing discontent with the current international financial system, as evidenced by the recent BRICS summit in Russia. The meetings also highlighted progress against global inflation as well as the risks of trade fragmentation caused by political divisions between world governments.

Why It Matters: The IMF has projected lower global growth scenarios given the uncertainty surrounding the protectionist policies a future U.S. administration may implement. Global real GDP growth is expected to be 3.2 percent this year and next year, with real GDP in the United States expected to grow at 2.8 percent and 2.2 percent, respectively. Economists at Morgan Stanley expect that U.S. real GDP growth could be cut by more than 1 percent depending on the level of tariffs the United States decides to implement. This would further exacerbate the U.S. debt problem, as economic growth would lag further behind government spending, and it would also have consequences for U.S. households’ real wage growth. Even if a more measured approach to tariffs is implemented, countries can respond with restrictions on the United States, particularly those on the trade of critical minerals, that could have major implications for the U.S. technology sector.

Looking Ahead: Presidential candidate Donald Trump has made tariff policy a large component of his campaign, and with the levying of wide-ranging tariffs a central aspect of his previous term, it is a policy he would likely continue. A 10 percent across-the-board tariff on U.S. imports, as proposed by candidate Trump, would certainly place downward pressure on these growth rates. Any tit-for-tat global trade war would also jeopardize these growth estimates and would likely create temporary inflationary pressure for consumer goods. An across-the-board tariff is estimated to cost households up to $2,350 per year, while a specific 60 percent U.S. tariff on China could bring household costs up to $3,900, owing to the fact that tariff hikes inevitably impact the price of imported consumer goods, which U.S. households purchase to the tune of trillions of dollars annually.

Candidate Kamala Harris, on the other hand, has not provided specifics on how her trade policy may differ from the current administration – which, it is important to note, kept in place many of the Trump Administration’s tariffs. Harris’ continued maintenance of many of these protectionist policies will keep in place higher taxes for consumers and businesses, collectively costing them hundreds of billions of dollars since 2018 (see Tariff Tracker below). In fact, 60 percent of tariff costs over this period have been incurred under the Biden Administration, despite the easing of certain tariffs on the European Union. Harris is also likely to continue the Biden “worker-centered” approach to trade policy, which requires the attachment of pro-labor-union provisions to trade agreements that make it more difficult to formulate such agreements and drive up costs for consumers. This approach could also create the conditions for longer, and thus costlier, labor union strikes at U.S. ports, which will inevitably raise the costs of imports.

Data Last Pulled on October 29, 2024