IMF warns excess trade surpluses aggravate tensions

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International Monetary Fund has warned that large trade surpluses in Germany and China together with the large US deficit could aggravate the trade frictions among the world’s major economies.

In a message that seemed directed largely at US President Donald Trump, the IMF warned against using protectionist trade measures calling it a “slippery slope” that could harm growth without resolving the problem.

In its latest External Sector Report, the IMF again urged surplus countries to take steps to boost demand and reduce savings to lower the excess current account imbalance, which is comprised largely of international trade.

The recommendations included allowing increased immigration into the US, something Trump strongly opposes, to help economic growth.

Trump has pursued a multifront trade confrontation with key economies, especially China, but also has singled out Germany, and the European Union in general, for treating the US “unfairly.” The tariffs he imposed have angered trading partners and prompted swift retaliation.

However, IMF chief economist Maury Obstfeld said there is no evidence of manipulation by China and called protectionist impulses misguided as they could undercut world growth by as much as 0.5 percentage points by 2020. He welcomed Germany’s recent efforts to boost spending and announcement of a new stimulus plan by China. But he said there is more they could do.

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