Daily Times

The collateral damage of the United States’ trade wars is being felt from the fjords of Iceland to the auto factories of Japan.

Central bank governors and finance ministers traded grim tales of suffering economies at the International Monetary Fund and World Bank fall meetings in Washington this week. Some also noted how far US policy had shifted from the 1940s, when Washington co-founded the IMF.

At that time, “the world economy had been hammered for over a decade by high tariff barriers, depression and war,” prompting then-US Treasury Secretary Henry Morgenthau to champion a global economic system, World Bank President David Malpass told attendees at a session this week.

The US message then, Malpass said, was: “First, there’s no limit to prosperity. Second, broadly shared prosperity benefits everyone.”

As the IMF’s gathering of 189 member-nations drew to a close, the unintended negative impacts of the trade wars were becoming clear, IMF Managing Director Kristalina Georgieva said. “Everybody loses.”

The United States, the world’s largest importer, started a bitter tariff war with China, the world’s largest exporter, 15 months ago. US President Donald Trump is also in the midst of renegotiating, and sometimes upending, trade relationships with many of Washington’s top trading partners.

The fallout will slow global growth in 2019 to 3.0%, the slowest pace in a decade, the IMF estimated this week. This pain is not being shared equally. The United States remains the least exposed of the world’s 20 largest economies to a drop in exports in part because of its massive domestic consumer spending base. (Here’s a graphic that shows the impact of tariffs in the United States and around the world. https://tmsnrt.rs/2OZJQba)

Europe’s Plan

The damage is being particularly felt in European countries which “rely on exports and are open to trade,” the European Union’s Economic and Financial Affairs Commissioner Pierre Moscovici said. More than 40% of Germany’s GDP was derived from exports in 2018, the most of any major global economy. Uncertainty in the business community is widespread, German Finance Minister Olaf Scholz told reporters.

German trade group BGA recently revised down its growth forecast for German exports in 2019 to just 0.5%, from 1.5%. As a result, many companies are scaling back their investment plans, something that will have repercussions for years to come.

Scholz said concerns over Britain’s impending departure from the EU and the bloc’s trade dispute with the United States were clearly dampening global economic growth. “The most important problem remains those factors that we cannot measure – specifically the reluctance to invest,” Scholz said.

The pain is being felt in countries that don’t rely on exports too, such as Iceland, which became the first developed economy to seek aid from the IMF after a 2008 banking collapse. Since then, it has rebuilt its economy in what’s been called a miraculous recovery. Now, that is threatened.