WASHINGTON - The International Monetary Fund warned Tuesday that rising trade tensions between the U.S. and China risk undermining a global economy that the IMF believes should otherwise grow solidly this year.
The lending agency has kept its forecast for worldwide growth this year at 3.9 percent, which would be its fastest pace since 2011. But the IMF's chief economist, Maurice Obstfeld, told reporters that this bright outlook could be derailed by a major trade conflict.
Speaking at a news conference, Obstfeld said the IMF had run economic simulations about the impact of a far-reaching trade war that would include across-the-board tariffs of 10 percent. The computer simulations showed a "fairly substantial" impact from tariffs of that magnitude, he said.
Global financial markets would likely also endure damage from rising threats of tariffs, Obstfeld said. Investors have already endured stomach-churning swings this year as markets have behaved wildly in response to the perceived likelihood of a trade conflict, especially resulting from actions and statements by the Trump administration.
Obstfeld said the IMF didn't take account of rising trade tensions in its baseline economic forecasts, but the consequences could be serious enough to trigger an economic downturn.
"If you keep poking at the economic expansion, it could turn around and bite you," Obstfeld said. There aren't "going to be any winners coming out of a trade war."
The IMF issued the update to its World Economic Outlook on the eve of spring meetings in Washington this week of the 189-nation IMF, the World Bank and the Group of 20 major economies.
In its base forecast, the IMF predicted that global trade would grow 5.1 percent this year, which would be the fastest pace since 2011.
President Donald Trump, who campaigned on a pledge to protect U.S. industries from what he argues is unfair foreign competition, has slapped tariffs on steel and aluminum imports. He has also proposed imposing tariffs on $50 billion in Chinese imports to punish Beijing for its aggressive attempts to obtain foreign technology.
China has countered by proposing tariffs on $50 billion in U.S. products, including soybeans -- a highly valuable export for America's farm belt -- and small aircraft. President Trump has, in turn, ordered the U.S. trade representative to consider targeting up to an additional $100 billion in Chinese imports.
The prospect of a trade war between the world's two biggest economies has rattled financial markets for weeks. For now, though, the global outlook remains sunny, thanks to low borrowing rates and increasing trade and investment.
The IMF predicted that the U.S. economy will grow 2.9 percent this year, up from the 2.7 percent it had forecast in January and from the 2.3 percent growth achieved last year. The U.S. economy will benefit through 2020 from tax cuts that President Trump signed into law in December, the IMF predicts.
The IMF upgraded its growth forecast for the 19-country eurozone to 2.4 percent -- which would be its best showing since 2007. That's up from the 2.2 percent it predicted three months ago. The eurozone, which emerged only slowly from its 2011-2012 debt crisis, is expected to benefit from continued low interest rates.
The organization projects China's growth at 6.6 percent this year, decelerating from 6.9 percent in 2017. The world's second-biggest economy is attempting a transition from superfast growth based on often-wasteful investment to slower but steadier expansion built increasingly on consumer spending.
The IMF expects India to outpace China, registering 7.4 percent growth this year. It pegs Japanese economic growth to decelerate to 1.2 percent from 1.7 percent in 2017. Japan's economy has long been hobbled by an aging workforce and dwindling population.
A recovery in the prices of commodities such as oil, which imploded in 2014-2015, likely will help developing economies this year. The IMF sees sub-Saharan Africa growing 3.4 percent this year, up from 2.8 percent in 2017. It forecasts Latin America to expand 2 percent this year, up from 1.3 percent in 2017.