Gains from US-China trade diversion only for short term, says IMF's Lagarde

KUALA LUMPUR (June 24): The trade diversion benefits caused by the ongoing US-China dispute may not necessarily translate into longer term developments that can contribute to the economy, says International Monetary Fund (IMF) managing director Christine Lagarde.

She believes that nobody wins in a trade war, including countries like Malaysia that is part of the supply chain of many products covered by the US' tariff increase on Chinese goods.

"What is important is to take into account the medium and longer term to see really what is the certainty and the likelihood of those trade diversions to actually anchor into the development of countries," Lagarde told a press conference during her visit to Bank Negara Malaysia (BNM) here today.

"What is seen now as sort of a short-term fix — which seems like a great opportunity for some countries — will not necessarily develop into a longer term development which will result in capital expenditure and foreign direct investment that can contribute to the real development of the economies," she added.

According to Lagarde, it is feared that global growth could face a 0.5% reduction in 2020 as a result of the tariff increase.

"We are concerned that the trade tensions could actually have a significant impact on global growth.

"Any positive move towards resolving the current trade tensions that we have seen between the US and China, among others, will certainly be welcomed from the perspective of the global economy," she added.

Lagarde is scheduled to meet Malaysian Prime Minister Tun Dr Mahathir Mohamad and Finance Minister Lim Guan Eng later this afternoon, to discuss, among others, fiscal and monetary policies, as well as Malaysia's anti-corruption and governance agenda as part of her official visit to Malaysia.

"We will acknowledge the progress already made and hope in particular that the governance principles be really entwined and embedded in the legal system of Malaysia, because that is the best way to ensure that it will survive the passing of time and the change of authorities over the course of the many decades to come," said Lagarde.

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