WASHINGTON: UStariffs on China won't fix the trade deficit, and neither will weakening the USdollar through interest rate cuts, International Monetary Fund economists saidyesterday. In unusually-blunt language, the blog post seemed targeted straightat President Donald Trump who has loudly and constantly demanded the FederalReserve cut interest rates to weaken the US dollar and juice the economy, whileimposing round after round of tariffs on China to reduce the deficit hedescribes as theft.
But the US policymoves are counterproductive, won't achieve the desired results, and will slowthe global economy, IMF chief economist Gita Gopinath said. "Higherbilateral tariffs are unlikely to reduce aggregate trade imbalances, as theymainly divert trade to other countries," Gopinath warned in a blog titled"Taming the Currency Hype," co-authored by fellow IMF researchersGustavo Adler and Luis Cubeddu.
"Instead,they are likely to harm both domestic and global growth by sapping businessconfidence and investment and disrupting global supply chains, while raisingcosts for producers and consumers." And any plans to weaken a country'sown currency value "are cumbersome to implement and likely to beineffective," they said, adding that pressure on the central bank will notachieve that goal either.
The authorswarned that "one should not put too much stock in the view that easingmonetary policy can weaken a country's currency enough to bring a lastingimprovement in its trade balance." "Monetary policy alone is unlikelyto induce the large and persistent devaluations that are needed to bring thatresult ... especially within a 12-month period," they said. With the USpresidential election coming in November 2020, Trump is especially focused onthe next 12 months.
'Bearing theburden'
With the IMF andothers warning that his trade war is slowing global growth, and as warningsigns of a US recession flashing red, Trump has doubled down on his attacks onthe Federal Reserve and on China. And he and his advisors have been talking upthe economy to counteract the increasing jitters on US stock markets.
But Trumpconfirmed Tuesday he is considering some kind of tax cuts to boost the economy.However, he said "We're far from the recession. If the Fed would do itsjob, I think it would have a tremendous spurt of growth." Just last month,the IMF again downgraded its global growth forecast, and said the tradetensions make for a "precarious" 2020, and said the tariffs threatento exacerbate the slowdown of China's economy.
The IMF blogrepeats much information released in separate reports, but highlights the keypoints and brings them together. While economic theory states that a weakercurrency tends to make a country's exports cheaper and more competitive, theIMF notes that many products are priced in US dollars on the globalmarketplace.
So in reality,"US importers and consumers are bearing the burden of the tariffs. Thereason: the stronger US currency has had a minimal impact thus far on thedollar prices Chinese exporters receive because of dollar invoicing." -AFP