Retaliatory Trade Tariffs Could Backfire on Asia, IMF Warns

The International Monetary Fund (IMF) issued a warning on Tuesday about retaliatory trade tariffs.

Speaking at a forum in the Philippines on systemic risk, IMF Asia-Pacific director Krishna Srinivasan said that “tit-for-tat” tariffs could undermine Asia’s economic prospects, raise costs and disrupt supply chains, despite the IMF’s expectation that the region would remain a key engine of global economic growth.

“The tit-for-tat retaliatory tariffs threaten to disrupt growth prospects across the region, leading to longer and less efficient supply chains,” Srinivasan said.

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Srinivasan’s remarks come amid concerns over US President-elect Donald Trump’s plan to impose a 60% tariff on Chinese goods and at least a 10% levy on all other imports.

‘Acute risk’ from rising trade tensions

Tariffs could impede global trade, hamper growth in exporting nations, and potentially raise inflation in the United States, forcing the US Federal Reserve to tighten monetary policy, despite a lacklustre outlook for global growth.

In October, the European Union also decided to increase tariffs on Chinese-built electric vehicles to as much as 45.3%, prompting retaliation from Beijing.

The IMF’s latest World Economic Outlook forecasts global economic growth at 3.2% for both 2024 and 2025, weaker than its more optimistic projections for Asia, which stand at 4.6% for this year and 4.4% for next year.

Asia is “witnessing a period of important transition”, creating greater uncertainty, including the “acute risk” of escalating trade tensions across major trading partners, Srinivasan said.

He added that uncertainty surrounding monetary policy in advanced economies and related market expectations could affect monetary decisions in Asia, influencing global capital flows, exchange rates, and other financial markets.