President Donald Trump's aggressive trade policies and expansive tax cuts have come under a lot of criticism due to their domestic as well as global impact. In its annual review of the US economy, the International Monetary Fund has warned that at a time when the US economy is growing, Washington's policies are creating risks that could damage the domestic and global economies. The tax cuts would generate a near-term boost to growth but "elevate the risks to the US and global economy". Meanwhile, the punitive import duties the US has imposed and threatened could harm the world economic recovery by "catalyzing a cycle of retaliatory responses" and interrupting global supply chains. The administration's use and justification for the tariffs on steel, aluminium and potentially autos would open the door for other countries to follow suit and use the excuse to impose broad import restrictions that would "undermine the rules-based global trading system". Instead, the US and its trading partners should work constructively together to reduce trade barriers and resolve trade and investment disagreements without resorting to tariff and non-tariff barriers. Washington should not ignore the US workers harmed by globalization but "should focus on mitigating the downsides through training, temporary income support and job search assistance".
The advice of the IMF to the US authorities, in particular its plea not to resort to tariff and non-tariff barriers but to resolve the trade issues through negotiations, is of course very valid and convincing but Trump thinks otherwise and does not shy away from a unilateral action. So far as expansive tax cuts and other domestic policies are concerned, he has every reason to go alone though, the US being the largest economy of the world, could also have ramifications for the other countries. It may be noted that Trump came to power on a wave of anger over immigration and international trade, perceived to be undermining workers' wages and American living standards. And while Trump has crowed about the beneficial impact of the massive income tax cuts, these actions have a high budgetary cost and could fuel faster inflation, prompting the Federal Reserve to raise interest rates more aggressively. The IMF's forecasts for growth and inflation at present are higher than the Fed's. The higher interest rates would set off a chain of spillover effects on the global economy.
While fiscal policy in the US could have a limited global and probably manageable impact, it is Trump's aggressive trade policies and the possibility of violation of world trade order which is more disturbing. Before he became president, he had repeatedly said that he thought NAFTA and the Trans-Pacific Partnership were terrible trade deals and he would either revoke or renegotiate if elected. He had also promised to protect US manufacturers with tariffs and claimed that the US was being robbed through lousy deals negotiated by his predecessors. Since the assumption of power, the US President has stiffened his stand. In an escalating spat over the US trade deficit with most of its major trading powers, including China, the European countries, Japan and Canada, Donald Trump said that he was pushing ahead with hefty tariffs on dollar 50 billion of Chinese imports, starting on 6th July, 2018. While China accused the US of "extreme pressure and blackmailing" and vowed to retaliate, the US President threatened to impose a 10 percent tariff on dollar 200 billion of Chinese goods in addition to dollar 50 billion of import duties if China resisted the move. Beijing has promised to fight back if the US published an additional list of tariffs on Chinese goods. It said that the "US has initiated a trade war and violated market regulations, and is harming the interests of not just the people of China and the US but of the world". While the war of words goes on between the US and most of the developed countries, other countries are watching the conflict with bated breath and praying for the good sense to prevail. The US may have a valid point but it must work to remove the injustice through the existing framework built over decades and sincere negotiations with the leading economies. If such a route is not adopted, there could be a possibility of another global depression.