WASHINGTON: US
tariffs on China won't fix the trade deficit, and neither will weakening the US
dollar through interest rate cuts, International Monetary Fund economists said
yesterday. In unusually-blunt language, the blog post seemed targeted straight
at President Donald Trump who has loudly and constantly demanded the Federal
Reserve cut interest rates to weaken the US dollar and juice the economy, while
imposing round after round of tariffs on China to reduce the deficit he
describes as theft.

But the US policy
moves are counterproductive, won't achieve the desired results, and will slow
the global economy, IMF chief economist Gita Gopinath said. "Higher
bilateral tariffs are unlikely to reduce aggregate trade imbalances, as they
mainly divert trade to other countries," Gopinath warned in a blog titled
"Taming the Currency Hype," co-authored by fellow IMF researchers
Gustavo Adler and Luis Cubeddu.

"Instead,
they are likely to harm both domestic and global growth by sapping business
confidence and investment and disrupting global supply chains, while raising
costs for producers and consumers." And any plans to weaken a country's
own currency value "are cumbersome to implement and likely to be
ineffective," they said, adding that pressure on the central bank will not
achieve that goal either.

The authors
warned that "one should not put too much stock in the view that easing
monetary policy can weaken a country's currency enough to bring a lasting
improvement in its trade balance." "Monetary policy alone is unlikely
to induce the large and persistent devaluations that are needed to bring that
result ... especially within a 12-month period," they said. With the US
presidential election coming in November 2020, Trump is especially focused on
the next 12 months.

'Bearing the
burden'

With the IMF and
others warning that his trade war is slowing global growth, and as warning
signs of a US recession flashing red, Trump has doubled down on his attacks on
the Federal Reserve and on China. And he and his advisors have been talking up
the economy to counteract the increasing jitters on US stock markets.

But Trump
confirmed Tuesday he is considering some kind of tax cuts to boost the economy.
However, he said "We're far from the recession. If the Fed would do its
job, I think it would have a tremendous spurt of growth." Just last month,
the IMF again downgraded its global growth forecast, and said the trade
tensions make for a "precarious" 2020, and said the tariffs threaten
to exacerbate the slowdown of China's economy.

The IMF blog
repeats much information released in separate reports, but highlights the key
points and brings them together. While economic theory states that a weaker
currency tends to make a country's exports cheaper and more competitive, the
IMF notes that many products are priced in US dollars on the global
marketplace.

So in reality,
"US importers and consumers are bearing the burden of the tariffs. The
reason: the stronger US currency has had a minimal impact thus far on the
dollar prices Chinese exporters receive because of dollar invoicing." -AFP