Gao Zhanjun: How the IMF Is Responding to the Trade War (AI Translation)

【周刊提前读】高占军专栏：国际货币基金组织如何应对贸易战冲击

In late April 2025, the annual Spring Meetings of the International Monetary Fund (IMF) and the World Bank took place, drawing unprecedented attention due to escalating geopolitical tensions and intensifying trade wars, which have created significant uncertainty for the global economy [para. 1]. During the summit, the IMF released its flagship reports, including the World Economic Outlook, Financial Stability Report, and Fiscal Monitor. These documents provide key assessments and forecasts for the global economy and financial stability, and the current analysis is particularly significant as it comes after the U.S. initiated a new trade war in early February 2025 [para. 2].

The IMF’s latest World Economic Outlook sharply downgrades its global growth forecast for 2025, reducing it from 3.3% in January to 2.8%. This projection reflects a notably pessimistic outlook: since 2003, global GDP growth has only fallen below 2.8% twice—during the 2009 financial crisis and in 2020 amid the COVID-19 pandemic. For additional context, even in 2008 following Lehman Brothers’ collapse, global growth reached 2.9%. The IMF’s tendency to be conservative in volatile periods suggests that realizing the 2.8% forecast may be challenging [para. 3].

Almost all economies have seen downward revisions to their growth forecasts, largely because of new restrictive trade measures. These measures impact economies directly by limiting trade and indirectly by generating spillovers through trade linkages, increasing uncertainty, and deteriorating market sentiment. The effects of tariffs vary across economies depending on trade relationships, industry structure, and their capacity for policy response or diversification. The IMF notes that, for some economies like China and the Eurozone, fiscal support can partially offset the negative impact [para. 4].

Focusing on the United States and China—the two principal actors in the trade war—the IMF identifies that the U.S. is undergoing a classic supply shock, leading to downgraded growth forecasts: 1.8% for 2025 (down 0.9 percentage points) and 1.7% for 2026 (down 0.4 points). Driving these revisions are factors such as rising policy uncertainty, trade tensions, and weaker-than-expected consumption, resulting in subdued demand. The IMF has also raised the likelihood of a U.S. recession from 27% to 40% and increased its inflation forecast for 2025 to 3%, citing persistent service sector price pressures, an acceleration in core goods prices, and tariff effects [para. 5][para. 6].

China, on the other hand, faces a demand shock rather than a supply shock [para. 7]. The IMF identifies four main economic channels: uncertainty, tariffs, fiscal policy, and others. For the U.S., all channels adversely affect growth, with uncertainty particularly damaging. For China, only tariffs have a marked negative effect, and uncertainty has little impact [para. 8].

The IMF concludes that trade wars confer no winners—both the U.S. and China have experienced diminished growth and higher inflation, but the U.S. has seen a sharper slowdown in growth, whereas China faces more acute price pressures [para. 9]. Importantly, the report is based on data up to April 4, 2025, and excludes subsequent escalations in tariffs, indicating that economic losses could widen further if current trade barriers become permanent [para. 10].

Looking ahead, the IMF warns of increasing downside risks, including continued escalation in trade hostility, persistent policy uncertainty, financial market volatility, and growing challenges to global cooperation. The IMF advises building policy buffers, maintaining flexibility, and resolving trade tensions to restore stability, stimulate consumption, and foster investment, thereby promoting sustained growth [para. 11][para. 12].