Trade tensions and frictions could inflict
long-term damage on investment by eroding the confidence of investors, IMF
chief Christine Lagarde said amid widespread concerns about a potential trade
war brewing between the US and countries like China according to media reports.
The US in March imposed steel and aluminum
tariffs in the name of national security, a move widely regarded as potentially
devastating to the global trading system if other countries follow suit by
bypassing the World Trade Organisation.
The US also threatened tariffs on US $150 billion
worth of Chinese imports. In return, China has proposed retaliatory measures
and vowed to fight to the end. United States has dragged India to WTO over levy
of customs duty on motor cycle imports
"In terms of the impact of the trade
tensions, frictions, and threats on the global growth, some modeling has been
done; and the actual impact on growth is not very substantial when you measure
in terms of GDP. We are talking about decimals in most cases," Lagarde
What is more important is something that is
difficult to measure in the short-term, and that has to do with the erosion of
confidence. When investors do not know under what terms they will be trading,
when they do not know how to organise their supply chain, they are reluctant on
investing," the IMF managing director said.
Growth, she said, is currently being driven by
more investment than seen in the previous years and more trade.
"So why damage those two engines that are
effectively working for growth?" she asked urging countries not to take
steps that increase trade tensions.
"What is extraordinarily meaningful is the
questioning of the overall system under which operators have been operating for
decades. It is the confidence of that risk being eroded, and hopefully that can
be remedied. It does not mean to say that only one party has to do something,
Referring to the recent announcement by the
Chinese President Xi Jinping that he would take steps to open up, remove caps,
reduce tariff, she said certainly those are helpful measures.
"We will be very attentive to the actual
implementation and delivery of such measures because this is what actually
matters, what effectively happens, what impact does it have on the economy, but
it is certainly going in the right direction of removing barriers and
facilitating investment," Lagarde said.