Managing Director of the International Monetary Fund (IMF), Christine Lagarde said yesterday that imposing import tariffs won’t eliminate trade deficits but will rather cause ‘potentially self-inflicted wound’.
Speaking at the 13th Annual Capital Markets Summit held at the U.S. Chambers of Commerce headquarters, Lagarde noted that it is true that not everyone has benefitted from global trade as there are distortions in the trade system.
Lagarde said though the system needs to be reformed, the reformation can’t be through setting up trade barriers.
She said the IMF, after analysing the experience from 180 countries over the past six decades found that trade integration ‘clearly boosts investment in plant, machinery and many other high-job creating areas.
Lagarde, who believes ‘trade barriers clearly damage investment and employment’, said the finding ‘is of particular relevance now as ongoing trade tensions around the world could further damage investment at a times when investment is already weak’.
Quoting from a new IMF research, Lagarde said: ‘Historically, bilateral trade balances have been driven mostly by macroeconomic factors, not bilateral tariffs’, adding that the most effective way to reduce a bilateral trade deficit is to steer clear of tariffs as the goods of one country only divert trade flows to other countries.
She called for modernisation of the global trade system and a joint approach towards reducing trade barriers.
She added that collective action should also be made to modernise the key function of the World Trade Organisation (WTO) in a bid to improve the organisation’s negotiating process, transparency and its dispute resolution mechanism.
Posted By Oyedeyi Samson
