External imbalances in world’s key economies pose risks to global stability, International Monetary Fund says

China should seek to negotiate a settlement to ease trade tensions that affect the international trading system and the global economy, fund says in annual report

PUBLISHED : Wednesday, 25 July, 2018, 12:01am
UPDATED : Wednesday, 25 July, 2018, 5:02pm

China should look to settle its trade disputes to help support the international trading system and global economy, the International Monetary Fund said on Tuesday.

The comment, made in its annual “External Sector Report”, came as trade tensions have been escalating around the world. The United States in June announced new tariffs on US$50 billion worth of goods its imports from China, most of which went into force on July 6, and took similar action against its allies Germany and Canada.

China-US trade war: the gloves are already off, but will Donald Trump’s favourite MAGA hats be next?

“Large and sustained excess external imbalances in the world’s key economies – amid policy actions detrimental to external balances – pose risks to global stability,” the report said, which looked at figures from 30 countries, including their trade balances, foreign currency reserves and exchange rates.

According to figures from Washington, the US has a US$375 billion trade deficit with China, a fact that has been a major contributor to the ongoing trade dispute.

Beijing has yet to respond to the latest threat from the White House to impose punitive tariffs on US$200 billion worth of Chinese products, and possibly extend the action to all goods it imports from the Asian nation, but has instead taken the case to the World Trade Organisation.

I’m ready to put tariffs on every import from China, US President Donald Trump warns

“China should seek a negotiated settlement to trade disputes that supports and strengthens the international trading system and the global economy”, the IMF report said.

At present there are no signs that Washington and Beijing are about to return to the negotiating table.

In the IMF report, China’s external position was “moderately stronger” last year, with its current account surplus accounting for 1.4 per cent of its gross domestic product, and its currency “broadly in line with its policies.

However, “the persistent unbalanced domestic demand in China could result in an abrupt growth slowdown and a resurgence of its excess external imbalances,” it said.

China unveils new measures to aid growth amid trade tension

To achieve a lasting balance, Beijing should seek to boost consumption and reduce saving, the report said.

Priority should be given to improving the social safety net, reforming state-owned enterprises and opening markets to more competition, while the country should also take steps to attract more foreign direct investment and ensure equal treatment for them.

Beijing has made repeated attempts to convince the rest of the world that it does not actively seek to have a large trade surplus and is keen to import more.

In recent months, it has also said it will allow foreign companies to take controlling stakes in joint ventures in the financial and car industries, and has reduced tariffs on some consumer goods, including cars.

China’s first ever import expo will be held in Shanghai in November.

China sends Donald Trump a message about free trade and the WTO

The IMF also forecast that the United States’ current account deficit will jump in the coming years given its stronger economy and fiscal stimulus.

However, it advised against Washington taking unilateral action to tackle the issue.

“Trade and investment disagreements should be resolved without resorting to the imposition of tariff and non-tariff barriers,” the report said.