The Managing Director of the International Monetary Fund (IMF), Kristalina Georgieva, has warned that the uncertainty surrounding bilateral tariff rates is hindering investment planning.
This environment is expected to cause a global economic slowdown. The longer this uncertainty persists, the greater the cost to the global economy.
According to the IMF, the complexity of modern supply chains means that imported inputs are used to produce a wide range of domestic products, leading to upward pressure on global inflation. Tariffs, like any other tax, raise revenues but reduce and displace activity.
Rising tariff rates impact trade partners, importers (reducing profits), and consumers (through higher prices). While tariffs on imported inputs have an immediate effect, large domestic markets can incentivize foreign companies to invest directly, creating new activity and jobs.
However, this process takes time. Protectionism undermines long-term productivity, especially in smaller economies, reducing incentives for efficient resource allocation and hindering innovation.