In the News Teaching Activity – IMF warns of damaging effects of a global trade war (Nov 2024)

The IMF is concerned that a global trade war would cause a significant 7% loss of global GDP.

The IMF has warned that a global trade war could shrink the world economy by an amount equal to the combined economies of France and Germany—around 7% of global GDP. With Trump mulling a 20% universal import tariff, if he wins the US election on Tuesday 5th November, and the EU ready to retaliate, risks are mounting. IMF’s Gita Gopinath urges governments to build fiscal resilience now, noting a rare "soft landing" for the global economy since COVID and the cost-of-living crisis: inflation is down without spiking unemployment—a "good win" that might not repeat in future crises.

IMF warns Trump trade tariffs could dent global economy as it upgrades UK outlook | Economic growth (GDP) | The Guardian

1. What is a ‘trade war’?

2. Using Comparative Advantage theory, explain how an increase in global tariffs could reduce global output?

3. Discuss whether retaliation is the most appropriate response to a trading partner increasing tariffs.