Navigating the Rough Seas of Global Trade

With U.S. trade policy in flux, the rest of the world is bracing for stormy economic weather ahead. And the uncertainty about where the economic ships of state are heading makes charting a course virtually impossible.

As the International Monetary Fund members gather for the organization’s spring meeting, Managing Director Kristalina Georgieva offered warnings about what may lie ahead.

“Financial market volatility is up,” she said in remarks delivered in advance of the meeting in Washington, D.C. “And trade policy uncertainty is literally off the charts. This is a reminder that we live in a world of sudden and sweeping shifts.”

While Georgieva tried her best to inject some optimism into the situation, it was clear in her remarks that the global trading system is facing some of its biggest challenges. Speaking directly on the issue of tariffs, she was clear the implications for global trade are serious and will affect everyone.

“As the giants face off, smaller countries are caught in the crosscurrents,” Georgieva said. “Protectionism erodes productivity over the long run, especially in smaller economies.”

Offering a preview of the IMF’s upcoming World Economic Outlook, Georgieva painted a dismal picture of the immediate economic future.

“Our new growth projections will include notable markdowns, but not recession,” she said. “We will also see markups in inflation forecasts for some countries.” As international trade continues to recover from the shock of the Covid-19 pandemic and resulting logistical and supply chain issues, further disruptions will not only hinder that recovery but are likely to make matters worse. And the end result could be fundamental changes in world trade.

“Trade is like water,” Georgieva said. “When countries put up obstacles in the form of tariff and non-tariff barriers, the flow divert.”

In addition to potential impacts on trade relations and growing instability in global markets, Georgieva also had a few words about the role of central banks in the global economy.

“To protect price stability, monetary policy must remain agile and credible, supported by a strong commitment to central bank independence,” she said. “We need a resilient world economy, not a drift to division.”

Right now, however, it appears Georgieva’s pleas will go unanswered and the economies countries large and small are going to be tossed about on the stormy seas of tariffs and trade wars. How severe the economic storm will be is as yet unclear, but it is not likely to be the last one the global economy faces. And for that reason, Georgieva’s closing words are worth repeating: “All countries, large and small alike, can – and should – play their part to strengthen the global economy in an era of more frequent and severe shocks.”

In other words, as global markets roil, it should be an all hands on deck situation, rather than every man for himself.