Lagarde Warns of Emerging Market and Low-Income Shocks by Trade War With China

IMF chief Christine Lagarde warns of emerging market and low-income shocks if Trump escalates his trade war with China.

Please consider Emerging Markets Threatened by US-China Trade War.

>The intensifying trade war between China and the United States could "shock" emerging markets that are already in danger, the head of the International Monetary Fund said in an interview published Tuesday.

>As a result, crises in Turkey and Argentina could spread, IMF Managing Director Christine Lagarde told the Financial Times.

>If the world's largest two economies continue on this course, it could have a "measurable impact on growth in China" and could "trigger vulnerabilities" in neighboring Asian economies whose supply chains are closely linked to Chinese industry, Lagarde told the newspaper.

>Some emerging economies find themselves in precarious situations, with currencies weakening in part due to the strong US dollar and investors looking instead to the United States, where benchmark lending rates are steadily rising. Weakening emerging market currencies could also affect eurozone exporters such as Germany and Spain.

>Earlier in the year, Lagarde had already warned against the dangers of a global trade war, hammering the argument that trade in goods and services was a driver of global growth.

Trade War Shock

Also consider the Financial Times report Lagarde Warns of US-China Trade War Shock to Emerging Markets.

Lagarde noted the adverse impact in the US would mostly be felt by the low-income people within the consumer population who would be hit by higher prices on a wide range of goods. 

No Winners

It usually pays to fade Lagarde and the IMF, especially on growth estimates. In this case, she is correct to be concerned about emerging markets. She also stated it could affect EU exporters.

Her warning should have gone further. The entire global economy will be impacted by a major US trade war with China.

Lagarde is correct in that low-income families would get the hardest. But no one will win. Some will simply lose more than others.

Trade is a positive, trade is a plus, trade needs fixing certainly," said Lagarde.

Actually, the only "fix" needed is complete free trade.

Alan Greenspan Comparison

Alan Greenspan was another economist it usually paid to fade. However, Greenspan was consistently right on one facet of policy. During his entire economic career, Greenspan was unwavering in his support of free trade.

Expect Contagion

The notion that the US will decouple from the global economy now is as silly as the notion that China would decouple in 2008.

Related Articles

  1. Trump Eyes Another $267 Billion in Tariffs (And He's Foolish Enough to Do It)
  2. "Fade the Jobs Report, We are Very Late Cycle: Danielle DiMartino Booth

Mike "Mish" Shedlock

Comments (16)
No. 1-11
Blacklisted
Blacklisted

Your biased perspective reminds me of the establishment hacks who claimed the bankster are too big to fail. Most of the EM's are corrupt sh*t holes that borrowed too much dollar-based debt, and now we are supposed to bail them out when a rising dollar and interest rates blow them up? They need a lesson in competitive destruction.

The Fed already gave them a MASSIVE break, at too he expense of savers, pensions, and our Social Security by keeping rates as low as they did for so long.

Unlike China in 2008, global capital is forced to park in dollar-based assets. So, yes, the US has been decoupling from the world, and it will continue until the rising dollar forces capitulation.

Blacklisted
Blacklisted

BTW, I find it amusing that you use the IMF and Lagarde as your support. They are the only group more corrupt than the DC swamp.

killben
killben

"During his entire economic career, Greenspan was unwavering in his support of free trade."

But then he was not in support of free market! It is this one man who is singularly responsible for all the booms and busts over the last 30 years by meddling in the markets and using interest rate as a Weapon of Mass Destruction. Where he showed the way, "Courage to act" Bernanke and "no financial crisis in my lifetime" Yellen followed. When there is no rule of law, no responsibility for wreckers-in-chief and law breakers can go about their merry ways with get-out-of-jail-free card, it is all too easy to talk/pay your way through almost anything.

caradoc-again
caradoc-again

This is the most important sentence........"Weakening emerging market currencies could also affect eurozone exporters such as Germany and Spain." It's EU banks on the hook to Turkey & South America really as well as exports.

They couldn't care less about poor Americans, but threaten the Euro project, watch out.

Mish, one thing needs to be clear, Lagarde and the IMF only care about the Euro project. Look what they did to Greece to protect the Euro.

No fan of barriers but PLEASE see the other overlapping pictures too.

ML1
ML1

Returning manufacturing to USA should give many well paying jobs to Americans.

If this is coupled with DEPORTATIONS of 10-20 million illegal immigrants and stopping current illegal immigration and stopping low wage legal immigration this should lead to big wage increases for all poor low income Americans making them better off even if there is small price increases in some products.

Companies price their products for maximum profit that hey can get as a whole always (profit per product x number of products sold x max profit per product that leads to max total profits through max number of products sold at optimum profit level) so the trade war should lead to smaller margins for companies and thereby lower stock prices but prices of products should stay about the same.

The only problem with Trump regarding trade is that he might lose his nerve because he boasts about high stock market so much and returning trade to a balance through tariffs will inevitably lead to crashing of many companies profit margins which will lead to much lower stock market.