Canadian Manufacturing

IMF head Lagarde warns against creeping trade protectionism

Though she didn't point to any specific party, the IMF chief criticized many of the policies espoused by U.S. President Donald Trump



WASHINGTON—The head of the International Monetary Fund says that after six years of disappointing growth, the world economy is finally gaining momentum. But she warns of a number of potential threats, ranging from political uncertainty in Europe to protectionism that could hinder global trade.

IMF Managing Director Christine Lagarde says that there is a critical need for more international co-operation, not less. Restricting trade flows would be a “self-inflicted wound” that would harm workers and consumers, she says.

In the text of a speech to be delivered in Brussels April 12, Lagarde did not single out any country for specific criticism on the issue of protectionism. But in his campaign, President Donald Trump vowed to impose punitive tariffs on goods from countries he believes harm American workers by flouting global trade rules.

Trump has threatened to impose tariffs as high as 45 per cent on goods from China and Mexico unless those nations stop practices he says violate trade laws.

Resorting to protectionism would have a number of consequences, from disrupting supply chains for domestic companies to inflating prices that companies and consumer must pay, Lagarde said. A better approach would be for countries running large trade surpluses and those running deficits to co-operate in pursuing policies to deal with the imbalances, she said.

“Cooperation means working together to ensure that countries observe a level playing field,” Lagarde said.

In her prepared remarks, Lagarde gave a preview of next week’s spring meetings in Washington of the 189-nation IMF and its sister lending organization, the World Bank. The United States will be represented at the discussions by Treasury Secretary Steven Mnuchin and Federal Reserve Chair Janet Yellen.

Lagarde said that the discussions are taking place at a time when prospects for the global economy are improving after struggling for six years to emerge from the severe downturn triggered by the worst financial crisis since the 1930s.

“The good news is that after six years of disappointing growth, the world economy is gaining momentum as a cyclical recovery holds out the promise of more jobs, higher incomes and greater prosperity going forward,” Lagarde said the speech to be delivered at Bruegel, an economic research institute in Brussels.

Lagarde cited stronger manufacturing activity in advanced economies and continued robust gains in emerging economies, which she said will provide more than three-fourths of expected global growth in 2017.

One of the reasons for optimism is a rebound in the price of commodities which have brought relief to many low-income countries.

“Putting all this together, we see a global economy that has a spring in its step,” Lagarde said, while cautioning that there are clear downside risks.

She said in that addition to the threat to trade from rising protectionism and political uncertainty in Europe, there is concern about the slow gains being made in productivity, the amount of output per hour of work. She said a pronounced slowdown in productivity growth since 2008 in the United States and many other industrial countries has had a severe impact on the global economy.

She said if productivity had grown since 2008 as it had been before the financial crisis, economic output in advanced economies would be 5 per cent higher today—the equivalent of adding a country with output larger than Germany to the global economy.

Lagarde said that nations must find ways to reinvigorate productivity, such as investing more in education and infrastructure and providing tax incentives to foster more research and development.

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