Ahead of the vote on Brexit, IMF head Christine Lagarde warned of a
prolonged period of uncertainty.
After the vote, Largarde said Brexit provided the EU a better opportunity
for reform.
Today Largard is certain of disastrous consequences if another large
county turns protectionist. In doing so, she pointed her finger at Donald
Trump.
Lagarde Points Finger at Trump
Please consider Lagarde Warns Trump-Style Protectionism Would Hit World
Economy.
Britain’s vote to leave the EU is already casting a shadow over
international growth, the International Monetary Fund chief said in an
interview, adding that the imposition of new trade barriers in another large
economy could have ruinous effects.
“I think it would be quite disastrous, actually. Well I don’t think I
should say disastrous because that is an excessive word and I should refrain
from excessive words. But it would certainly have a negative impact on global
growth,” she told the Financial Times.
[Mish Comment: So is it quite disastrous or simply negative? Her meaning
is uncertain]
Any uncertainty surrounding a Trump presidency would probably yield more
instability in financial markets, similar to the upheaval in the wake of last
month’s UK referendum, she said in response to a question. But the IMF chief
took care to avoid singling out any politician or referring to Mr Trump by
name.
[Mish comment: Lagarde took care to avoid singling out Trump, while
singling out Trump]
Ms Lagarde said “waves of protectionism” in the past had “preceded many
wars” and that protectionism “hurts growth, hurts inclusion and hurts
people”.
Ms Lagarde said she did not want to get involved in the political debate
in the US, the IMF’s biggest shareholder. But she made clear her dim view of
the policies of Mr Trump, who has proposed punitive tariffs on goods from
China and Mexico and ripping up US trade pacts such as the North American
Free Trade Agreement.
[Mish comment: Lagarde does not want to get into the political debate in
the US, but hands Hillary campaign talking points on a silver platter]
The IMF’s assessment of the impact of the Brexit vote on the UK economy
depends heavily on what sort of trade relationship with the EU a new
government would be able to negotiate, she said.
Should a deal preserve access to the single market — such as Norway now
enjoys — then the UK economy would be only 1.5 per cent smaller by 2019 than
would be the case if Britain remained part of the EU. Were a deal to lead to
the UK’s access to the EU’s 27 other economies being subject to tariffs under
World Trade Organisation rules, it would cost the UK 4.5 per cent growth.
The IMF had not modelled the economic impact of a scenario in which the
UK’s exit from the EU drags on and uncertainty continues for a year or more,
Ms Lagarde said, but the political crisis set off by the vote could make such
events likely.
[Mish comment: The IMF warned of a prolonged period of uncertainty but did
not model the result even though the “political crisis set off by the vote
could make such events likely”. How likely? The following paragraph provides
the answer]
“Do we have a forecast and scenario with prolonged uncertainty, total lack
of clarity, no triggering of Article 50 [the official notification required
to leave the EU], things staying in limbo for a long period of time? No. We
don’t have that. We doubt that it would be sustainable politically,
geopolitically,” she said.
[Mish comment: Prolonged uncertainty is both likely and unlikely]
For the July 19 update of the IMF’s World Economic Outlook, Ms Lagarde
said the organisation was looking at presenting a variety of possible
scenarios for the global economy depending on the outcome of Brexit
discussions — a departure from its usual format.
[Mish comment: I can hardly wait. Until then, the uncertainty is nearly
killing me]
Waves of Protectionism
If Lagarde wanted to make a positive contribution she should have embraced
free trade, totally and completely.
She is correct on one thing. And it’s a very big thing: “Waves of
protectionism in the past had preceded many wars. Protectionism hurts growth,
hurts inclusion and hurts people“.
The solution is so simple it’s beyond Lagarde’s comprehension.
The EU, US, and Asia ought to work out a genuine free trade agreement not
a mind-numbing set of rules and regulations that encompass the EU, nor secret
agreements like Obama’s proposed Trans Pacific Partnership (TPP) that has
little to do with free trade.
A genuine free trade agreement would consist of a single statement: “Effective
immediately, all tariffs and subsidies, on all goods and services, are
removed.”
For more on TPP, Tariffs, the WTO, and free trade, please see …
Lagarde finally issued a statement on trade that made sense. But it was
buried in a series of flip-flops and conflicting ideas that makes it clear
she really does not understand what free trade means.
Nonetheless, her warning about trade is correct. A global trade war could
indeed have disastrous consequences. And it’s not just Trump who could start
one.
Clinton, Trump and Sanders have all made similar statements on trade. For
details, please see Today’s Quiz: Donald Trump, Bernie Sanders, Hillary Clinton –
Who Said It?.
Mike “Mish” Shedlock
