Although implementation of drastically increased tariffs by the USA on virtually all trading partners in early April was halted later on– except a uniform 10 percent tariff on all trading partners that continues to hold– the level of uncertainty that this has created for economic outlook globally has been intense.
Having said that, since China retaliated significantly as a result of immense increase of tariffs from the USA– whereby against the increase in tariffs on China by the USA to 145 percent overall, China retaliated in virtually the same way, and placed tariffs on the USA of 125 percent– there was no pause on tariff implementation on China, as the pause was only for those countries apparently that did not retaliate in a significant manner.
In the recently released ‘World Economic Outlook’ report by the International Monetary Fund, and titled ‘A critical juncture amid policy shift’, the economic counsellor of the IMF, Pierre-Olivier Gourinchas, highlighted with regard to the relevance of the tariff related announcements from USA for global economy, including that of the earlier economic related projections of the IMF.
He pointed out in this regard ‘The April 2 Rose Garden announcement forced us to jettison our projections– nearly finalized at that point– and compress a production cycle that usually takes more than two months into less than 10 days. Shortly after the January 2025 WEO Update, the USA announced multiple waves of tariffs on major trading partners and critical sectors, culminating on April 2 with a set of nearly universal tariffs.
While many of the scheduled tariff increases are on hold for now, the combination of measures and countermeasures has hiked US and global tariff rates to centennial highs. However, the context for such increases is very different. Unlike in the previous century, the global economy is now characterized by a high degree of economic and financial integration, with supply chains and financial flows crisscrossing the world, whose potential unwinding could constitute a major source of economic upheaval.
For this reason, we expect that the sharp increase on April 2 in both tariffs and uncertainty will lead to a significant slowdown in global growth in the near term. While this is our central scenario– or “reference forecast”– many possible paths exist, reflecting the unpredictability surrounding future trade policy and the varied impact of tariffs across different countries through a diverse set of channels.’
In the same report, IMF highlighted the likelihood of significant slowdown in economic growth, which is ‘based on information available as of April 4 (including the April 2 tariffs and initial responses)’ that IMF indicated as its ‘reference forecast’. It pointed out in this regard ‘global growth is projected to drop to 2.8 percent in 2025 and 3 percent in 2026— down from 3.3 percent for both years in the January 2025 WEO Update, corresponding to a cumulative down grade of 0.8 percentage points, and much below the historical (2000–19) average of 3.7 percent.’
The world is in the tight grips of polycrisis and for instance, requires a significant level of domestic industrial base, in particular in developing countries, which due to the already high level of protectionism that they faced during colonial times from their colonizers in particular, meant that they lag far behind in terms of industrial production, especially heavy industry, and high technology-based industry, like producing vaccines. The former is all the more important, given the high likelihood of the ‘Pandemicene’ phenomenon at the back of a related, and fast unfolding climate change crisis.
Having said that, the IMF seemed to have virtually no space for the need of well targeted protectionist policies, especially in the wake of the misgivings about the neoliberal oriented global trade policies, as were quite evidenced from serious cracks that appeared in the wake of the Covid-19 pandemic.
Moreover, the world is in the tight grips of polycrisis, and for instance, requires a significant level of domestic industrial base, in particular in developing countries, which due to the already high level of protectionism that they faced during colonial times from their colonizers in particular, meant that they lag far behind in terms of industrial production, especially heavy industry, and high technology-based industry, like producing vaccines. The former is all the more important, given the high likelihood of the ‘Pandemicene’ phenomenon at the back of a related, and fast unfolding climate change crisis.
A recent ‘The Boston Globe’ article ‘Tariffs are dumb… right?’ highlights that there is a need for a well-focused protectionist policy, and its use for developing local industry, and for which there is a lot of consensus among political parties on both the left, and right in favour of protectionism with that purpose in mind.
The article pointed out in this regard ‘Tariffs may look ill-advised today. But they could very well be with us tomorrow. The question is: Can they be deployed intelligently– or are they always a bad idea? … First, you levy tariffs on imports from the Americans and the Brits in a bid to carve out a domestic market for your own burgeoning automakers and steel mills. Then you subsidize these up-and-coming firms in the hope of turning them into genuine competitors on the world stage. To American policy makers, this sort of meddling in the free market long felt unfair– artificial support, they said, for foreign competitors aiming to grab some of our global market share. But in recent years, they’ve started to see a place for industrial policy right here in the United States. …The pandemic demonstrated how fragile global supply chains can be. And with climate change upon us, large-scale disruptions will only be more frequent. Building up some industrial muscle is an important hedge against instability.’
