What advice would International Monetary Fund Managing Director Christine Lagarde give to President Donald Trump if he asked her to be an economic advisor for the administration?
“Trump would never ask me to be his advisor,” Lagarde prefaced before saying, “I would try to identify how well-governed, multilateral trade can be efficient and can be beneficial for each and every participant. That would be my mission No. 1.”
Lagarde, speaking in an interview on Wednesday at the World Economic Forum in Davos, Switzerland, was responding to a hypothetical question posed by Yahoo Finance editor-in-chief Andy Serwer as to what she would tell the president if she were his adviser. She elaborated that the U.S. needs to address trade policy in a more nuanced, global manner, rather than honing in narrowly on two-way exchanges.
“There is too much of a focus on the bilateral relationship, the bilateral surplus or deficit,” Lagarde said. “You talk to all the business community, they work on a global basis, they’ve organized their supply chain on a global basis. They operate in multiple countries, not just the big corporates, but the [small and medium-sized businesses] and some of the startups. The fact that we can communicate and that technology, the backbone of technology empowers small businesses, but they need to have access, they need to be able to trade on the basis of multilaterally accepted rules.”
Specifically, the bilateral trade relationship between the U.S. and China has the among biggest focal point for businesses and investors. Lagarde called the trade war between the countries among the biggest “risks on the horizon” for the global economy going forward, on par with Brexit divorce uncertainty and rising debt concerns.
“How will it be resolved, what tariffs will be reduced or increased? Which sectors will be affected? Again, there [are] negotiations going on, there [are] WTO efforts for reform, but it’s also a big question mark,” Lagarde said.
The IMF earlier this week reduced its outlook for global growth to 3.5% in 2019 and 3.6% in 2020, down 0.2 and 0.1 percentage points, respectively, from its projections from October. The IMF cited “an escalation of trade tensions beyond those already incorporated in the forecast” as a key source of risk – leading to the institution’s second downward revision to its growth outlook in three months.
A subset of the trade issue is concerns of a continued economic slowdown in China, Lagarde said. China reported Monday that its economy expanded by 6.6% last year, the slowest pace of growth for the country since 1990. And China has continued to come out with reports pointing to anemic growth in key sectors within its economy, with manufacturing activity and property and car sales dropping at the end of the year.
Any acceleration in the slowdown of the world’s second largest economy would “impact countries in the vicinity” as well as the global economy at large, Lagarde said.
However, Lagarde noted that there is “a little bit of hope” now relative to October, especially with regard to the U.S.-China trade relationship.
“Back in October, there was not that sort of step-by-step dialogue that we are seeing in place gradually between the U.S. and China,” Lagarde said. “It seems pretty clear that there is a real dialogue and a dialogue actually bears on both the bilateral relationship but also the more fundamental issues that will apply on a global basis such as IP protection, such as subsidies, such as state-owned enterprise activities, and compulsory transfer of technologies if those topics are exhaustive of what is being discussed. So on that front, there is something happening, which is in and of itself a pretty good development.”
Trump and China’s President Xi Jinping agreed in December to halt additional tariffs through March 1 as the two sides work toward negotiating a trade resolution. A delegation from the U.S. held three days of meetings with Chinese officials in Beijing earlier this month.
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
Read more from Emily: