The International Monetary Fund (IMF) has issued a warning about potential global disruption due to the economic policies of incoming U.S. President Donald Trump.
The IMF highlighted that a wave of threatened tariffs could exacerbate trade tensions, reduce investment, affect market pricing, distort trade flows, and disrupt supply chains.
While tariffs, tax cuts, and deregulation might boost the U.S. economy in the short term, the IMF cautioned that these measures could lead to an inflationary boom followed by a bust. This scenario could weaken the perceived safety of U.S. Treasury bonds.
Biannual forecast
The IMF’s biannual forecast for the world economy emphasized the risks associated with Trump’s policies. During his previous tenure, Trump initiated a trade war with China, resulting in reciprocal tariffs with the European Union.
- Currently, Trump has threatened tariffs on countries such as China, Mexico, and Canada, and has proposed imposing 100% tariffs on the BRICS bloc if they create a rival currency to the U.S. dollar.
- The IMF estimates that these measures, along with tax cuts and deregulation, could temporarily boost the U.S. economy. However, it warns that an inflationary boom could be followed by a bust, potentially weakening the role of U.S. Treasuries as a global safe asset. Investors typically view U.S. Treasury securities as one of the safest investments, backed by the U.S. government.
Additionally, excessive deregulation could lead to a runaway dollar, drawing money away from emerging economies and depressing global growth. The IMF also noted that Trump’s proposed deportations of illegal immigrants could “permanently reduce potential output” and increase inflation.
- The IMF predicted global growth of 3.3% for both 2025 and 2026, below the historical average of 3.7%. The 2025 forecast remains largely unchanged from previous estimates, as higher U.S. growth is expected to offset lower growth in other major economies.
Basing his assessment on current policies, IMF chief economist, Pierre-Olivier Gourinchas, said a period of stability would “draw to a close the global disruptions of recent years, including the pandemic and Russia’s invasion of Ukraine, which precipitated the largest inflation surge in four decades.”
However, there was an explicit warning to Trump and his economic advisers to resist dramatic policy shifts that would endanger the stability of the U.S. and global economy.
While the IMF’s health check shows the U.S. will maintain its status as the fastest-growing G7 economy, with a 2.7% rate of expansion this year and 2.1% next year, this judgment is based on policies adopted by the Biden administration.
