US-China trade tensions pose a threat to global economy: IMF

Trade tensions and the exchange of tariffs between the United States and China pose a «threat to the global economy,» the International Monetary Fund warned on Thursday.

Renewed tensions between the two economic superpowers were hanging over the negotiations that were set to resume later Thursday and IMF spokesman Gerry Rice renewed the call for a «speedy resolution.» «Clearly tensions between the United States and China in the trade sphere are a threat to the global economy,» Rice told reporters.

«As we have said before, everybody loses in a protracted trade conflict.» The US-China talks seemed on the verge of collapse this week after President Donald Trump said he would more than double punitive tariffs on $200 billion in Chinese goods starting Friday, accusing Beijing of backtracking on commitments made during the year-long negotiations.

Beijing denied the charge on Thursday and warned of unspecified retaliation should the new 25 per cent duties take effect. Nevertheless, Vice Premier Liu He is due in Washington for the key round of talks.

Trump said Wednesday that China›s negotiators were coming to «make a deal.» Rice called on «all parties to seek a resolution... that strengthens the international trading system.» «We›d be hoping for a speedy resolution to these discussions.» The IMF last month predicted that the slowing world economy could see a modest rebound in the latter part of 2019 − provided in part that the world›s top two economies resolve their differences.

Officials called the recovery «precarious.» The IMF›s World Economic Outlook once again downgraded global growth to 3.3 per cent for 2019, two tenths lower than the global crisis lender forecast in January and four tenths lower than October.

Meanwhile, The US goods trade deficit with China, a focus of President Donald Trump›s «America First» agenda, dropped to a five-year low in March amid a surge in exports, including soybeans.

The report from the Commerce Department on Thursday came amid escalating trade tensions between Washington and Beijing. Trump threatened on Sunday to raise tariffs on $200 billion worth of Chinese goods from 10 to 25 per cent on Friday. China has promised to retaliate if the duties were imposed.

Reuters, citing US government sources, reported on Wednesday that China had backtracked on almost all aspects of a trade deal between Washington and Beijing. China on Thursday appealed to the United States to meet it halfway to salvage a deal that could end their trade war.

Seperately, equity indexes around the world tumbled for a fourth day in a row on Thursday as US-China trade tensions put investors on edge the day before US President Donald Trump was due to raise tariffs on Chinese goods.

Oil prices fell as worries about the trade war outweighed a surprise drop in US inventories. US Treasury yields neared a six-week low while the dollar lost ground against Japan›s yen as investors sought a safe haven currency.

China asked the United States to meet it halfway, while its chief negotiator was in Washington for talks in the hope of staving off a US tariff hike on $200 billion of Chinese goods to 25% from 10% at 12.01 AM EDT on Friday.

Wall Street›s main indexes followed European equities lower after stocks in China tumbled.

Beijing has said it would retaliate against the tariff hike while Trump insisted that China «broke the deal.»

«Tomorrow we›re talking about how this escalates ... How does China respond,» said Quinlan. «It›s going to hurt. But what›s more important is the uncertainty it creates.»

The Dow Jones Industrial Average fell 374.81 points, or 1.44%, to 25,592.52, the S&P 500 lost 35.31 points, or 1.23%, to 2,844.11 and the Nasdaq Composite dropped 117.96 points, or 1.49%, to 7,825.36.

The pan-European STOXX 600 index lost 1.62% and MSCI›s gauge of stocks across the globe shed 1.35%.

In US Treasuries, 10-year yields hit 2.424, the lowest point since April 1.

Benchmark 10-year notes last rose 12/32 in price to yield 2.4405%, from 2.483% late on Wednesday.

«In the event of a complete breakdown in (trade) talks and higher tariffs, we would expect this to see U.S. stocks trade 10 to 15 percent below their highs and a fall of around 15 to 20 percent in the Chinese market,» said Mark Haefele, global chief investment officer at Global Wealth Management at UBS.

In currencies, the yen surged to a three-month high against the dollar and the Swiss franc was at a one-month high as investors eyeing escalating trade conflict, sought out the safe currencies. The greenback declined 0.5 against the yen.

The dollar index fell 0.3%, with the euro up 0.36% to $1.1231.

Agencies