US tariffs on China won't fix the trade deficit, and neither will weakening the US dollar through interest rate cuts, International Monetary Fund economists said yesterday. In unusually blunt language, the blog post seemed targeted straight at President Donald Trump who has persi
US tariffs on China won’t fix the trade deficit, and neither will weakening the US dollar through interest rate cuts, International Monetary Fund economists said yesterday. In unusually blunt language, the blog post seemed targeted straight at President Donald Trump who has persistently demanded that the Federal Reserve cut interest rates to weaken the US dollar and juice the economy, while imposing round after round of tariffs on China to reduce deficit he describes as theft.
But the US policy moves are counterproductive, won’t achieve the desired results, and will slow the global economy, IMF chief economist Gita Gopinath said. “Higher bilateral tariffs are unlikely to reduce aggregate trade imbalances, as they mainly divert trade to other countries,” Gopinath warned in a blog titled “Taming the Currency Hype,” co-authored by fellow IMF researchers Gustavo Adler and Luis Cubeddu.
“Instead, they are likely to harm both domestic and global growth by sapping business confidence and investment and disrupting global supply chains, while raising costs for producers and consumers.” And any plans to weaken a country’s own currency value “are cumbersome to implement and likely to be ineffective,” they said, adding that pressure on the central bank will not achieve that goal either.
The authors warned that “one should not put too much stock in the view that easing monetary policy can weaken a country’s currency enough to bring a lasting improvement in its trade balance.”
