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Christine Lagarde, Director of the International Monetary Fund argues for countries to strengthen the postwar open trade architecture by co-operating multilaterally to solve trade issues such as reducing excessive external imbalances. (MICHELE TANTUSSI/AFP/Getty Images)
Christine Lagarde, Director of the International Monetary Fund argues for countries to strengthen the postwar open trade architecture by co-operating multilaterally to solve trade issues such as reducing excessive external imbalances. (MICHELE TANTUSSI/AFP/Getty Images)

Economic momentum in peril from protectionism, IMF warns Add to ...

The head of the International Monetary Fund said Wednesday that after six years of disappointing growth, the world economy is finally gaining momentum. But she warned of potential threats, from political uncertainty in Europe to protectionism that could hinder trade.

Christine Lagarde, the IMF’s managing director, said there is a critical need for more international co-operation. Restricting trade flows would be a “self-inflicted wound” that would harm workers and consumers, she said in a speech previewing next week’s meetings in Washington of the 189-country IMF and its sister lending organization, the World Bank.

In the speech in Brussels, Ms. Lagarde did not single out any country for criticism on the issue of protectionism, though U.S. President Donald Trump campaigned on imposing punitive tariffs on goods from countries that he thinks harm American workers by flouting trade rules. Mr. Trump has threatened to slap tariffs as high as 45 per cent on goods from China and Mexico unless those countries stop practices he says violate trade laws.

Resorting to protectionism, Ms. Lagarde said, would disrupt supply chains for domestic companies and inflate prices that companies and consumers must pay. A better approach would be for countries – both those with trade surpluses and those with deficits – to co-operate in pursuing policies to address the imbalances. “Co-operation means working together to ensure that countries observe a level playing field,” Mr. Lagarde said.

The World Trade Organization released a report on Wednesday predicting global trade will rebound this year and in 2018 after a lacklustre 2016. The WTO predicted trade flows would rise 2.4 per cent this year, up from 2016’s 1.3 per cent, which was the weakest figure since the height of the financial crisis in 2008.

Next week’s finance meetings will likely be dominated by debate over how the global financial system should respond to trade and other economic proposals being pushed by the new Trump administration. The United States will be represented at the discussions by Treasury Secretary Steven Mnuchin and Federal Reserve chair Janet Yellen.

In an interview with Bloomberg TV, Ms. Lagarde cautioned against any move by the United States to target China as a currency manipulator in a report scheduled to be released in coming days by the White House. She spoke in response to a question about the possibility that the administration could label China a manipulator, something Mr. Trump pledged to do during the campaign, but which most analysts say he is unlikely to do now.

Ms. Lagarde said a better approach would be to conduct currency assessments in a “cohesive manner.” She noted the IMF plans to issue a report on exchange rates in July.

In her speech, Ms. Lagarde said next week’s meetings will occur at a time when prospects for the global economy are improving after struggling for six years to emerge from the severe downturn triggered by the worst financial crisis since the 1930s.

“After six years of disappointing growth, the world economy is gaining momentum as a cyclical recovery holds out the promise of more jobs, higher incomes and greater prosperity,” Ms. Lagarde said in her appearance at Bruegel, an economic research institute in Brussels.

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