In my family, there is a running joke. Whatever issue we’re discussing, from history to current events, the inevitable conclusion drawn is: “It all comes down to trade.” True story. In many ways, it’s my family’s motto. From the outbreak of the war in Ukraine (and the impact on the price of bread in Egypt) to the history of the Sahel (and the ancient salt and gold exchange) to a visit to Istanbul (and the shipping traffic up and down the Bosphorus), our dinner conversations always seem to find their way back to trade. Needless to say, it’s a lot of fun being a kid in my family.
This week, finance ministers and central bank governors from all over the world are gathering in Washington, DC, for the Spring Meetings of the International Monetary Fund (IMF) and the World Bank. In a typical year, the heady topics of macroeconomic coordination, financial crisis management, and financing global public goods would dominate their discussions. This year, there is only one topic on everyone’s mind: tariffs.
I recall a time when some of my economist friends and colleagues in finance would frankly look down their nose at trade, noting it just didn’t hold a candle to fiscal or currency issues as a matter of importance. Now, every international finance official has to roll up his or her monogrammed sleeves and get into the nitty-gritty of trade negotiations. The revenge of the trade nerds is finally complete.
There are, of course, a raft of other issues on the agenda of the IMF and World Bank this week. Under the banner of this spring meeting’s theme, “Jobs–The Path to Prosperity,” World Bank President Ajay Banga seeks to position the Bank’s activities behind a guiding “north star” of job creation. At the core of the effort is the projection that just 400 million jobs will be established over the next decade, despite 1.2 billion young people expected to enter the workforce—a significant gap that left unaddressed is bound to have serious economic, political, and social implications.
Another major focus of the Spring Meetings is how to support Ukraine’s reconstruction, including whether Europe will use the $250 billion or more in frozen Russian reserves held in EU jurisdictions for that purpose. The Europeans are still reluctant to let those assets (versus the interest on them) be used, but given the rather extraordinary steps they have taken to increase defense spending and potentially deploy boots on the ground in Ukraine, it should be possible for them to revisit the redlines they have drawn around this issue as well.
Reform of the international financial institutions, of course, is always on the agenda. In a speech this week at the Institute of International Finance, Treasury Secretary Scott Bessent indicated that the United States is unlikely to retreat from the IMF or the World Bank altogether. He stated, “America First does not mean America alone…America First seeks to expand U.S. leadership in international institutions like the IMF and the World Bank.” Bessent took issue, however, with the Bank and the Fund’s “mission creep” to work on climate change and social causes—things he equated to “falling short” of its mandates. Instead, he argued in favor of implementing major U.S.-driven reforms largely in support of the Trump administration’s plans to rebalance the global economy.
Bessent made clear that progress on sustained U.S. capital commitments to the Bank and the Fund was contingent on such reforms. For example, last year, the Biden administration pledged a record high $4 billion to the World Bank’s International Development Association (IDA) fund, which supports the world’s poorest countries. That pledge is subject to Congressional approval, and Bessent told reporters after his speech that “any of that would be contingent on the belief that we are back to basics, so we will see.”
In many respects, the IMF and World Bank should be favorites of the Trump administration. The rest of the world ironically views them as controlled by the United States, but in fact, they have long been underutilized tools for furthering U.S. interests largely leveraging other countries’ money. They are a good deal.
But the attention being paid to these agenda items pales in comparison to the focus on Trump’s tariff announcements. The Fund and Bank find themselves in a paradoxical position of seeking increased U.S. support while trying to protect the rest of the world from the impact of U.S. tariff policies.
The economic consequences of these policies are substantial and growing. By the numbers, the IMF on Tuesday reduced its global growth forecast to 2.8 percent, down from 3.3 percent in January. The short-term impact of Trump’s tariffs on the U.S. economy might be even greater, with the IMF reducing its 2025 U.S. GDP growth forecast to a paltry 1.8 percent down from 2.7 percent in January. Compounding matters, the IMF also increased its U.S. inflation forecast to 3 percent, up from its prior 2 percent forecast, raising the prospect of domestic stagflation.
Economists at leading firms on Wall Street are starting to price the odds of a recession as a coin flip. Earlier this month, J.P. Morgan revised its probability of a U.S. recession up to 60 percent. It is not alone. Goldman Sachs’ recession forecast is now at 45 percent, HSBC’s is 40 percent, and S&P Global’s is 30 to 35 percent—all markedly higher than at the start of 2025.
The prospects for global trade could be gloomier still. When I sat down with WTO Director General Ngozi Okonjo-Iweala at CFR earlier this week, she revealed that “merchandise trade will contract by about 0.2 percent, as compared to the 2.7 percent growth we had projected.” And that’s the WTO’s base case scenario. If you factor in expected retaliatory tariffs from around the world, the WTO projects at least a 1.5 percent decline in global trade. These revisions might appear small in nominal terms, but they represent hundreds of billions of dollars of impact.
U.S.-China trade, which accounts for upwards of 3 percent of all global trade, is, of course, in the eye of the storm. With current tariff rates well in excess of 100 percent on both sides of the Pacific, the two largest economies in the world have effectively embargoed bilateral trade in goods. Referencing a recent report, the WTO’s Okonjo-Iweala stated that “merchandise trade between the two economies will fall by 81 percent.” But the spillover effects from decoupling could dwarf the impacts in the United States and China. Ngozi noted that if the U.S.-China trade war fragmented the global economy into two isolated trading blocs, “global real GDP would be lowered by nearly 7 percent in the long term,” and “the welfare losses would be in the double digits for many developing economies.”
Developing economies are exceedingly sensitive to increased global tariffs because exports generally comprise a much higher share of their total GDP relative to the United States, where total exports account for some 11 percent of GDP. For example, export-reliant economies such as Lesotho rely on textile exports to the U.S. market alone for upwards of 10 percent of its GDP. Its export revenues will likely decline due to new U.S. tariffs. In an economy like Lesotho and larger emerging markets such as Vietnam, social safety nets are less robust than in the developed world, meaning lower growth and export revenues could drive millions into poverty and financial hardship. A multi-decade streak of poverty reduction is at risk. As WTO analysis reveals, “Between 1995 and 2022, low- and middle-income economies increased their share in global exports from 17 to 32 percent. During that time, there was a notable decline in the proportion of these economies’ populations subsisting on less than U.S. $2.15 per day. This figure dropped markedly from 40 percent in 1995 to 10 percent in 2022, indicating the positive impact of trade on poverty alleviation and economic development within these regions.”
Of course, these dire scenarios assume the Trump administration implements the announced tariffs. The President has been known to change his mind on occasion, and there is already signaling that the final tariffs might be lower.
On Tuesday, at a widely reported, yet allegedly closed-door event, Bessent acknowledged that the current tariff rates between the United States and China were unsustainable and made clear that the United States did not seek “decoupling” with China. Later that day, in the Oval Office, Trump likewise walked back his no-holds-barred rhetoric on the U.S.-Chinese trade war, stating that he wasn’t going to “play hardball.” Instead, he said he’ll be “very nice” to China and recognized that the 145 percent tariffs on China are “very high…It will come down substantially. But it won’t be zero. It used to be zero.” (Note for reader: It was never zero. China has been subject to the same tariffs as every other WTO member with whom we do not have a free trade agreement.) Coupled with Trump’s ninety-day pause on all “reciprocal tariffs,” tariff exceptions for certain electronics and semiconductors, and the rumored deals now in motion with Japan, India, Vietnam, and other key trading partners—the worst case scenario for the global trading system could be off the table.
Given all of these variables, only one thing is certain: Uncertainty is upon us, and that has a chilling effect all its own. Investor and consumer sentiment is declining, firms are pausing major capital investments, and domestic manufacturing activity is slowing as input prices are rising.
The global implications of this are at the center of the plate for the IMF and World Bank. They might well be called upon to keep the global economy on track, or at least to mitigate the downside risks, in the context of a policy far outside their control.
We welcome your feedback on this column. Let me know what foreign policy issues you’d like me to address next by replying to president@cfr.org.
