US Tariff War: Global Market Resilience Is Being Tested Again, Says IMF

• What We See Is Result Of Erosion Of Trust In International System, Between Countries

The International Monetary Fund (IMF), has raised an alarm that global market resilience is being tested again fuelled by the recent tariff hikes imposed by President Donald Trump of the United States.

 The Fund’s Managing Director of the Kristalina Georgieva noted that is is due to the reboot of the global trading system

 She made this known in an address titled “Toward a Better Balanced and More Resilient World Economy” delivered during the 2025 Spring Meetings Of the World Bank”.

 “Six months ago, in this very place, I spoke of low growth and high debt. But I also spoke of resilience—countries surviving large shocks thanks to strong fundamentals and agile policies.

 “This resilience is being tested again—by the reboot of the global trading system. Financial market volatility is up. And trade policy uncertainty is literally off the charts” she began.

 She however, advised that it is time to respond wisely.

 “And it is a call to respond wisely. A better balanced, more resilient world economy is within reach. We must act to secure it”.

 Delving into the issues, Georgieva warned that trade tensions are like a pot that was bubbling for a long time and is now boiling over.

 “To a large extent, what we see is the result of an erosion of trust—trust in the international system, and trust between countries.

 “Global economic integration has lifted vast numbers of people out of poverty and made the world as a whole better off.

 “But not everyone benefitted. Communities were hollowed out by jobs going overseas. Wages were repressed by the growing availability of low-cost labor.

 

“Prices went up when global supply chains were interrupted. Many blame the international economic system for the perceived unfairness in their lives.

 “Trade distortions—tariff and nontariff barriers—have fed negative perceptions of a multilateral system seen to have failed to deliver a level playing field” she lamented.

 She continued saying all the recent tariff increases, pauses, escalations, and exemptions, it seems clear that the U.S. effective tariff rate has jumped to levels last seen several lifetimes ago with other countries responding.

 “Smaller advanced economies and most emerging markets rely more on trade for their growth, and are thus more exposed, including to tighter financial conditions. Low-income countries face the added challenge of collapsing aid flows as donor countries pivot to dealing with domestic concerns.

 Touching on the implication to the global economy, the IMF Chief said; “First, uncertainty is costly. The complexity of modern supply chains means imported inputs feed into a broad range of domestic products.

 “The cost of one item can be affected by tariffs in dozens of countries. In a world of bilateral tariff rates, each of which may be moving up or down, planning becomes difficult. The result? Ships at sea not knowing which port to sail to; investment decisions postponed; financial markets volatile; precautionary savings up. The longer uncertainty persists, the larger the cost.

 “Second, rising trade barriers hit growth upfront. Tariffs, like all taxes, raise revenue at the expense of reducing and shifting activity—and evidence from past episodes suggests higher tariff rates are not paid by trading partners alone. Importers pay some part through lower profits, and consumers pay some part through higher prices. By raising the cost of imported inputs, tariffs act upfront. Of course, if domestic markets are large, they also create incentives for foreign firms to respond with inward investment, bringing in new activity and new jobs. This, however, takes time.

 “Third observation, protectionism erodes productivity over the long run, especially in smaller economies. Shielding industries from competition reduces incentives for efficient resource allocation. Past productivity and competitiveness gains from trade erode. Entrepreneurship gives way to special pleadings for exemptions, protection, and state support. This hurts innovation. But again, if domestic markets are large and domestic competition is vibrant, negative effects can be mitigated.

 “Ultimately, trade is like water: when countries put up obstacles in the form of tariff and nontariff barriers, the flow diverts. Some sectors in some countries may be flooded by cheap imports; others may see shortages. Trade goes on, but disruptions incur costs”.

 She added that the Fund will quantify these costs in its new World Economic Outlook, to be released early next week.