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Global economic leaders are gathering in Washington this week for the spring meetings of the International Monetary Fund and the World Bank to discuss about the threats faced by global economy as a result of President Donald Trump’s trade war.
Recent debates over industrial policy and whether the world economy could achieve a soft landing have been replaced by anxiety over hiked tariffs, revived inflation fears and new worries about the prospect of a global recession.
The IMF Managing Director, Kristalina Georgieva in her curtain-raiser speech last week: “Uncertainty is costly;” said she is focused on: To deal with the tariff war and its negative impacts, the IMF—in the WEO—recommends that member countries “reform and rebalance,” sorting out imbalances between saving and investment at home (looking at you, United States) and imbalances between domestic consumption and production (what China needs to work on).
It also calls on developing countries to more effectively mobilize domestic resources. Such reforms would balance out trade relationships and make them more sustainable, benefiting all.
Those recommendations are all well and good, but the IMF has not explained how it expects countries to be able to make these reforms.
By highlighting the importance of balanced trade, the IMF has harkened back to its original mandate, formulated at the Bretton Woods Conference in 1944. And that is a good thing: Persistent trade imbalances (mainly with countries such as China and Germany posting surpluses while others, mainly the United States, incur deficits) have made the trading system unsustainable, both practically and—as the United States’ unilateral tariff moves show—politically.
Meanwhile, the multilateral institutions that are hosting the meetings and that receive funding from the United States are also under increasing pressure to prove their relevance to the Trump administration while avoiding confrontations that could compel Mr. Trump to withdraw from them entirely.
“The post-World War II rules-based system of global governance, which the United States played a key role in fashioning, is crumbling before our eyes,” said Eswar Prasad, a former China director of the I.M.F.
“The Trump administration has left little doubt about its distaste for practically every multilateral institution, including the I.M.F. and the World Bank, because it views these institutions’ recommendations and policies as not always perfectly aligned with narrowly defined American interests,” Mr. Prasad said.
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The U.S President ratcheted up tariffs to their highest levels in more than a century, creating widespread global economic uncertainty and most likely disrupting supply chains. At the same time, a sharp pullback in U.S. foreign aid is putting sudden pressure on poor countries that have for decades relied on American support to provide food and medicines for the world’s most vulnerable populations.
He said little publicly about the I.M.F. or the World Bank since taking office in January. But officials at both institutions have been watching warily as the president upends the global trading system, rapidly overhauls the federal government and cracks down on foreign nationals working and studying in the United States.
Before Trump was elected, the Project 2025 policy blueprint drafted by his conservative allies called for the United States to withdraw from the I.M.F. and the World Bank. Many Republicans have concerns about their policies that focus on promoting equity and combating climate change.
“I think the I.M.F. is going to try to maintain a low profile during these meetings because it is awaiting the Trump administration’s review of the U.S. participation in multilateral organizations,” said Mark Plant, a senior policy fellow at the Center for Global Development. “There are no clear signals as to what direction the United States might move.”
While the Trump administration could pull out of the I.M.F. and the World Bank, doing so would be complicated and most likely cede more global influence to China by giving it more sway in how the institutions are operated.
The I.M.F. could attract Trump’s attention this week when it offers its first assessment of the impact of his tariff policies. Last week, Kristalina Georgieva, the managing director of the fund, said Mr. Trump’s trade actions were damaging the world economy and signaled that the I.M.F. would lower its growth forecasts and raise its inflation projections.
“Ultimately, trade is like water,” Ms. Georgieva said in a speech. “When countries put up obstacles in the form of tariff and nontariff barriers, the flow diverts.”
The I.M.F.’s latest World Economic Outlook projects that global output will slow to 2.8 percent this year from 3.3 percent in 2024. That is half a percentage point lower than the fund’s forecast in January.
Much of the downgrade for this year can be attributed to the impact of the tariffs on the United States, the world’s largest economy, which was already poised to lose momentum this year. The I.M.F. expects U.S. output to slow to 1.8 percent in 2025, down from 2.8 percent last year. That is nearly a full percentage point slower than the 2.7 percent growth that the I.M.F. forecast for the United States in January, when it was the strongest economy in the world.
Ms. Georgieva added: “Some sectors in some countries may be flooded by cheap imports; others may see shortages. Trade goes on, but disruptions incur costs.”
