The International Monetary Fund (IMF) has issued a cautionary statement regarding the economic policies anticipated under incoming President Donald Trump, highlighting potential global repercussions that could ultimately affect the United States itself. The IMF’s concerns center around Trump’s proposed tariffs and their capacity to escalate trade tensions, lower investment, distort trade flows, and disrupt supply chains.
Short-Term Gains, Long-Term Risks
While the IMF acknowledges that Trump’s plans for tariffs, tax cuts, and deregulation may provide a temporary boost to the US economy, it warns that these measures could lead to an inflationary boom followed by a significant economic bust. Such fluctuations may undermine the stability of US Treasury bonds, which are typically viewed as a safe investment due to their backing by the US government.
In the IMF’s twice-yearly forecast for the global economy, Trump’s imminent arrival in the White House takes center stage in the risks section. During his previous administration, Trump initiated a trade war with China, resulting in retaliatory tariffs with the European Union (EU). This time, he has threatened tariffs against several countries, including China, Mexico, and Canada, and indicated he would impose 100% tariffs on the BRICS bloc if they create a rival currency to the US dollar.
Potential Global Impact
The IMF warns that these proposed economic strategies could have severe consequences beyond US borders. An inflationary boom in the US may lead to a subsequent bust that could diminish the appeal of US Treasuries as a global safe asset. Investors typically regard US Treasury securities as one of the most secure investment options, but instability could change that perception.
Moreover, the potential for excessive deregulation might trigger a “runaway dollar,” drawing funds away from emerging economies and stunting global growth. Additionally, Trump’s intentions to carry out deportations of illegal immigrants could have long-lasting effects, potentially reducing the country’s productive capacity and contributing to inflationary pressures.
Economic Forecasts
In its projections, the IMF anticipates global growth of 3.3% for both 2025 and 2026, falling short of the historical average of 3.7%. This forecast remains largely unchanged from previous estimates, with the IMF expecting higher US growth to compensate for slower growth in other major economies. The World Bank also echoed these concerns, predicting that US tariffs could negatively impact trade and lead to a decrease in global growth in the coming year. It forecasts global growth of only 2.7% for 2025, marking the weakest performance since 2019, aside from the sharp declines experienced during the COVID-19 pandemic.
In the UK, the IMF predicts an economic growth rate of 1.6% for 2025, a slight increase from its earlier projection of 1.5% in October of the previous year. Chancellor Rachel Reeves expressed optimism, stating that the UK is on track to be the fastest-growing major European economy over the next two years and the only G7 nation, aside from the US, to receive an upgraded growth forecast for this year.
Conclusion
As Donald Trump prepares to take office, the IMF’s warnings underscore the complexities and potential risks of his proposed economic policies. While short-term benefits may be enticing, the broader implications for both the US and the global economy could be detrimental. The international community will be watching closely as these policies unfold, hoping for a balanced approach that fosters growth without triggering instability.
