Finance chiefs gathering in Washington this week were set to discuss the global economy’s surprising resilience in the face of US President Donald Trump‘s tariff assaults until the US-China trade war erupted again with the US president threatening 100% duties on Chinese imports and sending markets into a tailspin.
The annual meetings of the International Monetary Fund (IMF) and World Bank are certain to be dominated by questions over whether Trump’s vow to retaliate against China’s dramatically expanded export controls on rare earths will plunge the world’s two largest economies back into a full-blown trade war.
A delicate truce crafted by Washington and Beijing over the past five months brought down tariffs from triple-digit levels and prompted upgrades to the IMF’s global growth outlook. Plans for Trump to meet Chinese President Xi Jinping later this month fuelled hopes for a further thaw.
That optimism was shattered on Friday when Trump threatened to cancel the meeting and impose a “massive increase” in tariffs on Chinese goods together with other countermeasures.
Souring the mood further was China’s move on Friday to match new US port fees for Chinese-built or owned vessels with its own levies on port calls by ships built or flagged in the US or owned by companies more than 25% owned by US-domiciled investment funds.
The IMF and World Bank meetings will bring more than 10,000 people to Washington, including finance ministers and central bank governors from more than 190 countries.
Martin Muehleisen, a former IMF strategy chief who is with the Atlantic Council, said Trump’s threats may be posturing for negotiating leverage, but said they will inject volatility into the week’s proceedings.
“Let’s hope sanity prevails. If Trump goes back to 100% tariffs on Chinese goods there’s going to be a lot of pain in the markets for him,” Muehleisen said.
Trump’s threat on Friday triggered the biggest US stock sell-off in months at a time when investors and top policymakers were growing anxious about a frothy stock market fueled by an investment boom in artificial intelligence that some officials fear could hurt future employment.
While China has some leverage over Trump due to its global dominance in rare earths, which are essential for tech manufacturing, Muehleisen said it is not in Beijing’s interest to plunge back into an environment of triple-digit tariffs.
It is unclear whether US treasury secretary Scott Bessent, who has led US-China trade talks, would meet with Chinese officials this week in Washington. A treasury spokesperson declined to comment on Bessent’s bilateral meetings schedule.
GROWTH FORECASTS HOLD UP
Before the escalation on Friday, IMF MD Kristalina Georgieva had touted the global economy’s ability to withstand many shocks, from tariff costs and uncertainty to a slowing US job market, rising debt levels and rapid shifts brought on by AI’s rapid adoption.
In a preview of the IMF’s World Economic Outlook forecasts due on Tuesday, Georgieva said last week the global GDP growth rate for 2025 would be only slightly less than the 3.3% for 2024. Based on tariff rates that were lower than initially feared, including the US-China duties, the IMF in July raised its 2025 GDP growth forecast by two-tenths of a percentage point to 3.0%.
“What we are seeing is demonstrable resilience in the world,” Georgieva told Reuters in an interview.
“However, we are also saying it is a time of exceptional uncertainty and downside risks are dominating the forecast. Watch it but don’t get too comfortable.”
G7 FOCUS ON RUSSIA
Finance ministers from the Group of Seven (G7) industrial democracies are expected to meet on Wednesday to discuss efforts to step up sanctions pressure on Russia that is aimed at ending Moscow’s war against Ukraine.
A British government source said finance minister Rachel Reeves wanted to ensure joint action with G7 and EU countries to cut Russia’s energy revenues and access to overseas assets that comply with international law.
Among the options G7 ministers will discuss is a EU plan to use Russian frozen sovereign assets to back a loan of €140bn (R2.8-trillion) to Ukraine.
BESSENT’S AGENDA FOR INSTITUTIONS
The US footprint at the meetings will be large, extending from tariff discussions to Bessent’s calls for the IMF and World Bank to pull back from climate and gender issues to focus on their core missions of financial stability and development.
The meetings will be the public debut for Dan Katz, the IMF’s new No 2 official. Member countries will be watching to see how Katz, a former investment banker who was Bessent’s chief of staff, carries out the US treasury chief’s agenda, which also calls for stronger IMF criticism of China’s state-led economic policies.
The US treasury’s market intervention on behalf of Argentina, the IMF’s largest borrower, will also take centre stage at the meetings as Argentina’s right-wing libertarian President Javier Milei will join his ally Trump two blocks away at the White House on Tuesday. The move was welcomed by Georgieva to keep Argentina’s market-based reforms on track.
However, Muehleisen said the IMF risks being pushed by its largest shareholder to enforce Trump’s geopolitical goals, ratcheting up pressure on China and potentially extending more aid to US allies such as Argentina without adequate reforms.
“Does it continue to be a global, multilateral organisation or is it becoming a bit more of an appendage of the US treasury?” he said.
“This will be an interesting debate.”
Reuters
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