Trump's policies have fueled a 10-fold increase in trade uncertainty over the past year, IMF says

Reuters

• President Donald Trump's policies have fueled a tenfold increase in trade uncertainty over the past year, according to an International Monetary Fund report out Monday.
• "The index shows increased uncertainty starting around the third quarter of 2018, coinciding with a heavily publicized series of tariff increases by the United States and China," the IMF said.

• The IMF estimated uncertainty in the first quarter of 2019 could reduce annual global growth by up to 0.75 percentage points.

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President Donald Trump's policies have fueled a record increase in trade uncertainty over the past year, according to an International Monetary Fund report out Monday.

After two decades of stability, the IMF's trade policy uncertainty index jumped 10-fold from previous highs over the past year as the Trump administration ignited disputes with China and other countries. That uncertainty has been cited as a key force behind a slowdown in global growth.

"The index shows increased uncertainty starting around the third quarter of 2018, coinciding with a heavily publicized series of tariff increases by the United States and China," the IMF said of the hundreds of billions of dollars of duties levied over the past year. "Globally, the trade policy uncertainty index is rising sharply, having been stable at low levels for about 20 years."

Trade uncertainty declined after the US and China delayed further tariffs at the G-20 meeting in December in Buenos Aires. But that reprieve was only temporary, with the index jumping significantly again after the two sides escalated tensions several times in recent months.

IMF

The trade dispute is expected to continue to weigh on output as it raises prices and curbs investment in the largest economies, with the IMF estimating uncertainty in the first quarter of 2019 could reduce annual global growth by up to 0.75 percentage points. The nonpartisan Congressional Budget Office has similarly forecasted uncertainty would chip away at growth in the US.

"Data currently shows US businesses are putting expansion plans on hold because of trade uncertainty," said John Lynch, the chief investment strategist for LPL Financial.

The Federal Reserve pointed to trade uncertainty as a key strain on the economy as it lowered interest rates for the first time since the global financial crisis in July. Tensions between the US and China have only escalated since then, potentially setting the stage for further easing this month.

"I think it is the case that uncertainty around trade policy is causing some companies to hold back on investment," Fed Chairman Jay Powell said at a question and answer session in Switzerland on Friday.

He continued: "We've been hearing quite a bit about uncertainty. For businesses to particularly make longer-term investments in plants or equipment or software, they want some certainty that the demand will be there."

High levels of trade uncertainty have also been recorded among other US trading partners, the report said, including Canada, Mexico, Japan, and large European economies. The index tracks activity in 143 countries beginning in 1996.

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