Tariff Pain is Contagious

Spring meetings of the International Monetary Fund and the World Bank bring together finance ministers from all around the globe.

This comes as the Trump administration tries to negotiate with its trading partners intensely.

Tragically, the world economy's deteriorating outlook will overshadow those bilateral conversations.

No matter how many tariffs the US imposes, the bleak global picture will affect US trading partners.

"Many countries will be indirectly hit if US tariffs substantially weaken the economic prospects of their trading partners," remarks Karen Dynan, a senior scholar at the Peterson Institute and an economist at Harvard.

Global economic growth expectations have been declining since Trump's "Liberation Day" declaration on April 2.

In a recent survey conducted by Bank of America, 82% of investors anticipate a weakening global economy.

Dynan, speaking at a Peterson Institute event last week, lowered her 2025 global growth projection from 3.2% to 2.7%.

After projecting 3% growth for the final quarter of last year, Goldman Sachs now predicts only 1.4% year-over-year increase for the world's gross domestic product.

In Tuesday's World Economic Outlook, the International Monetary Fund will lower its own growth projections.

"Our new growth projections will include notable markdowns but not recession," stated Kristalina Georgieva, Managing Director, on Thursday.

Because of this, even nations that are hopeful about reaching a trade agreement with the US will be monitoring international developments.

Let us pretend you are the Japanese government, which has been one of the Trump administration's top negotiating priorities. South Korea, Hong Kong, Thailand, Vietnam, and Mexico round up its top ten export markets, after China and the United States.

In 2023, Japan's exports to the last five countries were marginally higher than those to the US. Reduced tariffs in the US would be ideal for Japanese exporters.

However, Japan might also feel the effects of high tariffs on Vietnam, China, and Mexico, which would have a negative impact on those economies.

When the International Monetary Fund's Global Financial Stability Report is released on Tuesday, analysts will be closely watching to see which dangers the organization emphasizes.

The US bond market, which was heavily pressured two weeks ago, is one area that they will definitely consider, according to Martin Mühleisen, a senior fellow at the Atlantic Council and a former official at the IMF.

Another indicator to monitor is the decline in the International Monetary Fund's (IMF) five-year growth projection for the world over the past few years.

According to Dynan, "It's quite possible that the IMF medium-term outlook will be less positive," but the extent to which this is true will rely on the tariff assumptions made by the IMF.

She explains that last year, forecasters were hopeful about the future because of productivity-boosting technologies like AI. On the contrary, the most gloomy medium-term prediction in decades could be on the horizon.