The International Monetary Fund has warned that US economic policies under incoming president Donald Trump could hit the rest of the world and ultimately backfire on the US.
The IMF says a threatened wave of tariffs could make trade tensions worse, lower investment, hit market pricing, distort trade flows and disrupt supply chains.
Although tariffs, tax cuts and deregulation could boost the US economy in the short term, it could set the scene for an inflationary boom followed by a bust, it said.
This could weaken US Treasury bonds as a safe bet, it added.
The imminent arrival of Trump in the White House dominates the section on risks in the IMF’s twice yearly forecast for the world economy.
When he was last in power, Trump launched into a trade war with China, and US policy led to tit-for-tat tariffs with the EU.
This time around, Trump has threatened tariffs on countries including China, Mexico and Canada, and has said he would impose 100 per cent tariffs on the BRICS bloc of nine nations if they were to create a rival currency to the US dollar.
While the IMF estimates these measures, along with tax cuts and deregulation, could boost the US economy in the short-term, there are some unusually grave warnings about it could hit the rest of the world and ultimately the US.
It warns that an inflationary US boom could be followed by a possible bust that would potentially “weaken the role of US Treasuries as the global safe asset”.
Investors see US Treasury securities as one of the safest possible bets, because the bonds – which are kind of like an IOU – are backed by the US government.
In addition, if red tape on business is cut too much, this could lead to a runaway dollar that could suck money out of emerging economies, depressing global growth.
The IMF predicted global growth of 3.3pc in both 2025 and 2026, below a historical average of 3.7pc.
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