Policy Center for the New South, Seeking Alpha, Capital Finance International, TheStreet.com
Last week was my twenty-third consecutive week attending the World Bank and IMF Spring Meetings in Washington, DC. I no longer take part in the official sessions, but I am still invited to the many side conventions and debates that take place around them.
A key moment is always the release of the IMF’s World Economic Outlook report. This year, it received special attention due to curiosity over how the institution would project the impacts of the tariff war initiated by Trump’s second administration.
The IMF downgraded its global growth forecast by half a percentage point to 2.8% for this year and lowered its 2026 forecast to 3% (Figure 1). This represents a slowdown from the 3.3% growth rate in 2024, with the Fund warning of the “major negative shock” from rising trade barriers. The forecast factored in only the tariff announcements from the U.S. and retaliatory measures from other countries between February 1 and April 4—before Trump announced a 90-day pause on most of his so-called “reciprocal tariffs,” while simultaneously increasing tariffs on China.
Figure 1
The Fund cut its U.S. growth forecast for 2025 to 1.8%—down from the previous 2.7% projection—and to 1.7% in 2026. While this still keeps the U.S. as the fastest-growing G7 economy for this year and next, it marks a clear drop from the 2.8% expansion seen in 2024. The IMF also downgraded growth projections for all other G7 countries, as well as for other major economies, including China, India, Brazil, and South Africa.
China is expected to slow down, with the IMF forecasting 4% growth for both this year and next, compared to 5% in 2024. Brazil’s real GDP growth forecast was lowered to 2% for both 2025 and 2026. Among G20 countries, only Turkey, Argentina, and Russia showed improved growth projections.
The IMF’s Global Financial Stability Report also drew significant attention, particularly due to financial market turbulence since the start of April. The report concluded that risks to markets have “increased significantly” since the White House’s tariff moves, with a selloff in U.S. equities and government debt contributing to a “tightening of financial conditions” (Figure 2).
Figure 2
The announcement of the “reciprocal tariffs” on April 2 had an immediate negative impact on stock markets, and starting on April 7, similar effects were seen in U.S. government bond markets. We started witnessing phenomena typically associated with emerging markets facing capital flight: yields on 10-year Treasury bonds rose while the dollar depreciated… Global portfolios visibly began shedding U.S. assets.
These market moves reflected a shift in perception about who has Trump’s ears. Up until the announcement of the massive “reciprocal tariffs” on April 2 (Figure 3), it was believed that Treasury Secretary Scott Bessent’s view prevailed—that Trump’s tariffs were mainly “transactional” tools for negotiation purposes. This had been the case with Mexico during Trump’s first term, as well as apparently the early announcements regarding Canada and Mexico during his second term.
The shock came on April 2, when it became apparent that the dominant logic might be pure and simple protectionism, with the rise of Howard Lutnick (Secretary of Commerce), Peter Navarro (Senior Counselor for Trade and Manufacturing), and Jamieson Greer (U.S. Trade Representative). Markets shifted focus to the damaging real-economy and financial impacts highlighted in the two IMF reports last week.
Figure 3
It was no coincidence that the 90-day postponement of the “reciprocal tariffs”—even with the China-specific increases—came during Scott Bessent’s presence at the White House. The brief market relief that followed reflected renewed hope that the “transactional” approach might prevail. However, chaos in the bond markets was temporarily reinforced by Trump’s threat to fire Federal Reserve Governor Jeremy Powell, a threat that was denied on Monday of last week.
The escalation of tariffs and other retaliatory measures from China appeared to catch the Trump administration by surprise. Remarkably, the U.S. intensified the tariff war with China without even minimal preparation for realities such as China currently processing over 90% of critical minerals and magnets necessary for digital products.
A high-stakes game of bluff – a poker game—seems to have been established between the U.S. and Chinese governments. Trump and Bessent speak of negotiations between the two countries, while the Chinese insist that talks can only begin once the U.S. rolls back specific new measures targeting China.
On Tuesday, April 22, Secretary Scott Bessent said at a conference organized by JPMorgan that he hoped the two countries would eventually reach an agreement, noting that a trade war with China was “unsustainable.”
On Friday 25 of April, there were reports that China’s Ministry of Commerce was reviewing sectors affected by Beijing’s 125% tariffs on U.S. products, according to Michael Hart, president of the American Chamber of Commerce in China. Meanwhile, although Donald Trump claimed Chinese President Xi Jinping had “called” him, Beijing denied that any negotiations to ease trade tensions between the world’s two largest economies had started.
Another hot topic last week was the Trump administration’s relationship with multilateral institutions. One of Trump’s first executive orders was a review of these relationships, with a report due in August. Last year, a report from the influential conservative think tank, the Heritage Foundation, even proposed that the U.S. withdraw from the Bretton Woods institutions.
At one of the side events during this week’s IMF and World Bank Spring Meetings, hosted by the Institute of International Finance, Secretary Scott Bessent did not call for an exit but emphasized tying U.S. contributions to a shift in institutional focus. He criticized the IMF and World Bank for “mission drift,” demanding they steer away from “extensive and unfocused agendas” like climate change and gender issues.
Going back to the IMF reports of last week, they also outlined less pessimistic scenarios in case negotiations between the U.S. and its major trading partners lead to tariff reductions. According to Tobias Adrian, director of the IMF’s Monetary and Capital Markets Department, although the negative effects of tariffs have already been “somewhat priced in,” equity and bond prices could “certainly” fall further if negotiations fail. So, it’s either successful negotiations or further stress and downgrades.
Let’s wish for the best after such a spring of tariff regret.
Otaviano Canuto, based in Washington, D.C, is a former vice president and a former executive director at the World Bank, a former executive director at the International Monetary Fund, and a former vice president at the Inter-American Development Bank. He is also a former deputy minister for international affairs at Brazil’s Ministry of Finance and a former professor of economics at the University of São Paulo and the University of Campinas, Brazil. Currently, he is a senior fellow at the Policy Center for the New South, a professorial lecturer of international affairs at the Elliott School of International Affairs – George Washington University, a nonresident senior fellow at Brookings Institution, a professor affiliate at UM6P, and principal at Center for Macroeconomics and Development.