The world’s top finance policymakers on Sunday weighed the impact of ballooning trade tensions on the global economy amid differences over the extent to which they are dragging on growth.
Finance ministers and central bank chiefs from the G20 group of the world’s top economies are expected to note the “downside risks” to the global economy from trade battles, notably between the top economic superpowers China and the US. Japanese Finance Minister Taro Aso, who is hosting the talks, told reporters as the first day of talks wrapped up on Saturday that the world economy should “firm” in the second half of the year but “downside risks still remain.”
Aso said “market confidence could be eroded” if there were no rapid resolution to the ongoing trade war between Beijing and Washington, which has seen the world’s top two economies impose billions of dollars of tit-for-tat tariffs and threaten even tougher action.
IMF chief Christine Lagarde singled out trade tensions as the “major” headwind facing the global economy, adding that it was a “significant risk on the horizon,” in an interview with Japans Nikkei daily on Sunday.
Lagarde has previously described the trade wars as a “self-inflicted wound” and warned that US-China tariffs so far imposed and threatened could trim 0.5 percentage points off global GDP growth next year — an amount USD 455 billion larger than the entire South African economy.
Meanwhile, French Finance Minister Bruno Le Maire said there was a “real risk” that “this global economic slowdown could turn into a global economic crisis due to trade tensions. A worsening of the international climate and a real trade war would lead to an even more marked slowdown in global growth, with a direct impact on our jobs, companies, factories and sectors,” Le Maire told AFP in an interview on the sidelines of the meeting.
A Japanese official who declined to be named briefed reporters that “very many countries voiced concerns that escalation of the trade friction is a very significant downside risk to the world economy. That is a fact.” However, the treasury secretary from the US, which continues to threaten more tariffs on China if there is no trade deal, played down the risk of a global economic conflagration.
“Clearly there is a slowdown in Europe, there’s a slowdown in China, there’s a slowdown in other parts. I don’t believe that’s as a result of trade tensions. That slowdown has gone on for the last year,” Steven Mnuchin told reporters on Saturday. He acknowledged that other policymakers had voiced concerns over the economic impact of a prolonged trade war but pointed to a potential boon for other countries.
As companies move out of China in order to avoid US tariffs, “there’s going to be a big economic opportunity for a lot of other countries,” he said. “There will be winners and losers,” he predicted. Nevertheless, Mnuchin also pointed to the positive boost to the world economy that could result from a breakthrough in trade talks, likely to be the main focus of a meeting between the US and Chinese leaders at a G20 summit later this month.
“I think if we get a deal, its a very positive thing for economic growth, for us, for China, for Europe, for the rest of the world. The opening of these economies tends to lead, in my mind, to more growth on both sides,” said Mnuchin.