"Tariffs are not the answer to global imbalances"/ IMF warning: They could worsen global risk sentiment
Global current account balances expanded sharply in 2024, reversing a narrowing that had been occurring since the 2008-2009 global financial crisis, the International Monetary Fund said, warning that tariffs were not the answer.
In its annual External Sector Report, which assesses imbalances in the 30 largest economies, the IMF noted that external surpluses, or deficits, were not necessarily a problem, but could pose risks if they became excessive.
According to the IMF, prolonged domestic imbalances, continued fiscal policy uncertainty, and escalating trade tensions could worsen global risk sentiment and increase financial stress, harming both debtor and creditor countries.
The report took aim at US President Donald Trump's imposition of higher import tariffs against almost every trading partner, which his administration says are aimed at raising revenue and correcting long-standing trade deficits.
"A further escalation of the trade war would have significant macroeconomic effects," the IMF said, noting that higher tariffs would reduce global demand in the short term and add to inflationary pressures through rising import prices.
Rising geopolitical tensions could also trigger changes in the international monetary system (IMS), which in turn could undermine financial stability.
The report showed that the expansion of global current account balances was largely due to growing surpluses in the world's three largest economies - the United States, China and the euro area.
The deficit in the United States widened by $228 billion to $1.13 trillion or 1% of global gross domestic product (GDP), while China's surplus increased by $161 billion to $424 billion and euro surpluses expanded by $198 billion to $461 billion.
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