IMF warns G20 that tariffs will harm global economy as Trump threatens escalation

The International MonetaryFund (IMF) warned world economic leaders on Saturday that arecent wave of trade tariffs would significantly harm globalgrowth, a day after U.S. President Donald Trump threatened amajor escalation in hisdispute with China.

IMF Managing Director Christine Lagarde said she wouldpresent the G20 finance ministers and central bank governors meeting in Buenos Aires with a report detailing the impacts ofthe restrictions already announced on global trade.

"It certainly indicates the impact that it could have on GDP [gross domestic product], which in the worst case scenario undercurrent measures ... is in the range of 0.5 per cent of GDP on aglobal basis," Lagarde said at a joint news conference withArgentine Treasury Minister Nicolas Dujovne.

In the briefing note prepared for G20 ministers, the IMFsaid global growth may peak at 3.9 per cent in 2018 and 2019, while downside risks have increased due to the growing tradeconflict.

Her warning came shortly after the top U.S. economicofficial, Treasury Secretary Steven Mnuchin, told reporters in the Argentine capital there was no "macroeconomic" effect yet on the U.S., the world's largest economy.

Long-simmering trade tensions have burst into the open inrecent months, with the United States and China the world'sNo. 2 economy slapping tariffs on $34 billion US worth of eachother's goods so far.

More tariffs coming?

The weekend meeting in Buenos Aires comes amid a dramaticescalation in rhetoric on both sides. Trump on Friday threatenedtariffs on all $500 billion of Chinese exports to the UnitedStates.

Mnuchin will try to rally G7 allies over the weekend to jointhe United States in more aggressive action against China, butthey may be reluctant to co-operate because of U.S. tariffs imposed onsteel and aluminum imports from the European Union and Canada,which prompted retaliatory measures.

The last G20 finance meeting in Buenos Aires in late Marchended with no firm agreement by ministers on trade policy exceptfor a commitment to "further dialogue."

German Finance Minister Olaf Scholz said he would use themeeting to advocate for a rules-based trading system, but thatexpectations were low.

"I don't expect tangible progress to be made at thismeeting," Scholz told reporters on the plane to Buenos Aires.

The U.S. tariffs will cost Germany up to 20 billion euros($23.44 billion) in income this year, according to the head ofGerman think-tank IMK.

Hope of restraint

Bank of Japan Gov.Haruhiko Kuroda said he hoped thedebate at the G20 gathering would lead to an easing of retaliatory trade measures.

"Trade protectionism benefits no one involved," he said. "Ithink restraint will eventually take hold."

Mnuchin told reporters on Saturday that he has not seen amacroeconomic impact from the U.S. tariffs on steel, aluminumand Chinese goods, along with retaliation from trading partners.

But he said there have been microeconomic effects onindividual businesses,adding that the administrationwas closely monitoring these and looking at ways to help U.S.farmers hurt by retaliatory tariffs.

The U.S. dollar fell the most in three weeks on Fridayagainst a basket of six major currencies after Trump complained again about the greenback's strength and about Federal Reserveinterest rate rises, halting a rally that had driven the dollarto its highest level in a year.