IMF chief economist says U.S. tariffs won’t reduce trade deficit

IMF chief economist says U.S. tariffs won’t reduce trade deficit

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WASHINGTON :  Raising tariffs against imports is not the right way to reduce the U.S. trade deficit, which is likely to increase further because of the planned U.S. fiscal stimulus, International Monetary Fund (IMF) chief economist Maurice Obstfeld has said. The United States is misguided to impose new tariffs on various imports valued at hundreds of billions of U.S. dollars in a bid to reduce the country’s massive trade deficit, Obstfeld said in a recent interview with a Chinese media.

“It seems intuitive that if I have an import tariff, I will import less and my current account will improve,” said Obstfeld, economic counselor and director of the Research Department at the IMF.”That’s really misguided because the effects are really complex. If I have an import tariff, my currency might strengthen, which is in fact what economic theory predicts,” Obstfeld said.In Obstfeld’s view, the U.S. dollar, viewed widely as a safe-haven currency, is likely to rise further as the United States imposes more tariffs on imports.That will make American exports more expensive for the rest of the world. As U.S. exports decline and imports increase, the U.S. trade deficit will increase further.

The planned fiscal stimulus, large tax cuts and increased government spending will also temporarily boost domestic demand and imports, leading to a higher U.S. trade deficit, said Obstfeld, one of the world’s leading experts on international economics.Therefore, “trade policies don’t have major quantitatively measurable impact on current account imbalances, which are mainly a macroeconomic phenomenon,” he said.

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