Big Economies Need To Rebalance Not Trigger Trade Wars

Big economies could do more to help the world if they saved or spent more rather than arguing about trade tariffs, cautions the International Monetary Fund.

The IMF has examined the world’s leading 30 economies and found some are spenders and others are savers.

But young economies need to spend to grow with the help of imports and borrowing, while older established nations need to save and run cash surpluses that they can lend to other countries.

Some countries have an imbalance in their economy that means they save or spend too much, says the IMF.

“After narrowing in the aftermath of the global financial crisis, global current account surpluses and deficits have remained relatively unchanged over the past five years at about 3.25% of global GDP. Our analysis indicates that about 40 to 50% of these global balances are excessive, and increasingly concentrated in advanced economies,” says the IMF report.

Trade tariff threat

Countries with higher than desirable current account balances are grouped in places such as Northern Europe, with Germany, the Netherlands, and Sweden or in Asia with China, Korea and Singapore.

Those with a lower than desired balance are the US and UK.

While the US is threatening to impose huge trade tariffs on goods from China and Europe, the IMF suggests rebalancing their economies would avert a trade war.

“Trade and investment disagreements should be resolved without resorting to the imposition of tariff and non-tariff barriers,” the IMF says.

Protectionism is harmful

“Protectionist measures should be avoided as they are harmful for growth and do little to correct imbalances.”

Instead, the US should cut government borrowing while investing more in infrastructure and education to expand the economy’s capacity.

And China should look at ways to stop excessive saving and open the economy to more outside competition that would encourage growth.

The IMF also warns that Britain and the US need to expand the skills base of their workforces to become more competitive and the best way to do this quickly would be to offer jobs to more foreign workers, which goes directly against the policies of both governments which are acting to deter immigration.

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