The International Monetary Fund has warned that US economic policies under new President Donald Trump could have knock-on effects for the rest of the world and ultimately turn against the United States.
The IMF says a threatened wave of tariffs could worsen trade tensions, reduce investment, hit market prices, distort trade flows and disrupt supply chains.
Although tariffs, tax cuts and deregulation could boost the U.S. economy in the short term, they could set the stage for an inflationary boom followed by a bust, the report said.
This could weaken U.S. Treasuries, which are a safe bet, he added.
Donald Trump’s impending arrival at the White House dominates the risks section of the IMF’s biannual forecast for the global economy.
In his last term, Trump engaged in a trade war with China, and US policies led to tariffs with the EU.
This time around, Trump threatened to impose tariffs on countries like China, Mexico and Canada, and said he would impose 100% tariffs on the nine BRICS bloc countries if they created a rival currency to the American dollar.
Although the IMF believes that these measures, combined with tax cuts and deregulation, could boost the US economy in the short term, there are some particularly serious warnings that this could affect the rest of the world and, term, the United States.
He warns that an inflationary boom in the United States could be followed by an eventual collapse that could potentially “weaken the role of U.S. Treasuries as a global safe asset.”
Investors view U.S. Treasury securities as one of the safest bets possible because the bonds — which are a bit like an IOU — are guaranteed by the U.S. government.
Furthermore, if red tape on businesses is cut too low, it could lead to a runaway dollar that could suck money out of emerging economies, thereby depressing global growth.
Trump’s continued deportations of illegal immigrants could “permanently reduce potential output” and also increase inflation.
The IMF forecasts global growth of 3.3% in 2025 and 2026, below the historical average of 3.7%.
His forecast for 2025 remained largely unchanged from previous ones, mainly because he expects higher U.S. growth than previously forecast to offset weaker growth in other major economies.
The World Bank also warned on Thursday that U.S. tariffs could hurt trade and dampen global growth this year.
The bank forecasts global growth of 2.7% in 2025, which would be the weakest performance since 2019, apart from the sharp contraction observed at the height of the Covid pandemic.
