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.

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

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

Mike "Mish" Shedlock

Comments
No. 1-11
Kinuachdrach
Kinuachdrach

Low income hardest hit? That woman is a GYNOPHOBIC RACIST! Everyone knows that women & minorities are always hardest hit.

To be serious for a moment, when one finds oneself on the same side of an issue as Lagarde and the IMF, it is time to take a walk outside, clear one's head, and look deeply at the beliefs one holds.

caradoc-again
caradoc-again

Read and weep. From Junker today/yesterday and I tell you the IMF are on side in ways you would not think. The US has many enemies that will use various barriers to control US policy whether that policy is dumb or not. Expect others wants and needs to be IMPOSED on the US. Talk of care for poor Americans it's B.S., an excuse to impose limits on action whether the action is sensible or not.

Junker - "In his speech, he also said the EU should flex its potential strength as a world power as the US under President Donald Trump pulls back from international engagement, saying that when united, the EU was a force to be reckoned with.

Whenever Europe speaks as one, we can IMPOSE our position on others,"

caradoc-again
caradoc-again

Another question, what is Mrs IMF intending to do to "fix it". All the elite talking heads do is highlight problems. READ HER WORDS.

Trade is a positive, trade is a plus, TRADE NEEDS FIXING certainly," said Lagarde.

The only fix they will like is one that maintains the status quo and is no threat to the Euro/EU. I'm pretty sure emerging markets will be stressed but are more likely to adapt and recover quickly. Not so the rigid, controlling EU the likes of the French Elite Lagarde loves to defend at all costs. If Germany and others continue with their policies imbalances will only increase until there is a backlash.

The US has indebted itself massively and that alone is a systematic threat. Everyone wants to see a fix until it negatively impacts their own ballywick.

ML1
ML1

Problem with Trump is that he might lose his nerve in his trade war and tariffs middle of the way because removing the trade imbalance must lead to lowering of profit margins at many companies and this should lead to lower stock market.

Trump boasts about the high stock market a bit too much.

The current stock market has been powered by high profit margins following from offshoring of production and lowering of wages through illegal immigrants and low wage legal immigrants while UNSUSTAINABLE levels of consumption and demand have been kept up by continually increasing debt levels.