The article was first published on OMFIF on  Apr 17th 2025.

Mark Sobel is US Chair of OMFIF.

Delegates from across the globe will descend on Washington DC on 21 April for this year’s International Monetary Fund-World Bank spring meetings. They will try to decipher if there is any rhyme or reason to the Trump administration’s economic policy chaos and the ensuing global financial market turmoil. They will leave as they arrived – scratching their heads with few answers.

Pity sensible economic policy-makers.

The US entered 2025 with good momentum and many projections anticipated annual growth of 2.25% to 2.5%. But given the huge uncertainties generated by President Donald Trump’s tariff chaos, forecasts are being marked sharply downward. Meanwhile, progress in bringing down US inflation is stalling and tariffs will worsen the outlook. Stocks tanked, yields soared and Trump mind-bogglingly brought into question the dollar’s safe-haven status.

Recession and stagflation are buzzwords of the day. The Federal Reserve will face a ticklish position – will it hold back due to higher inflation prospects or be more inclined to cut rates if the economy tanks?

Trump will most likely succeed in extending his 2017 tax cuts, though the timing is uncertain. What is clear is that debt and deficits are likely to rise – the US is now on track for continued 6% to 7% of gross domestic product deficits for the coming decade – despite the noise surrounding Elon Musk’s Department of Government Efficiency cuts and contrary to Treasury Secretary Scott Bessent’s delusion that growth will surge and deficits be cut to 3%. Continued high deficits will put upward pressure on rates and cause Treasury market indigestion on top of the turmoil generated by Trump’s misguided tariff policies.

Impact of tariffs will be felt globally

China’s deflationary challenges and other entrenched woes, such as housing and demographics, remain in place. Trump’s tariffs will bring US-China trade towards a standstill and others fear Chinese dumping in their markets. The authorities are providing modest stimulus but should use the considerable space on hand to do more. One shouldn’t underestimate China’s leverage over the US. President Xi Jinping will hardly back down. A full on US-China trade war will shift derisking to decoupling, amplifying global fragmentation.

The U-turn in Germany’s fiscal stance is highly welcome and long overdue given geopolitics, enormous fiscal space and a longstanding need to boost domestic demand and reduce external orientation. It is deplorable this turn was prompted by an apparent US abandonment of transatlanticism. But the economic impact will take time to unfold. German stagnation, along with debt woes in other major euro area countries, will hold European growth down, despite European Central Bank cuts, which may now go deeper than expected a month ago given weaker global growth, falling oil prices and a somewhat stronger euro.

Japanese prospects had appeared more favourable, but US automobile tariffs could deliver a blow. Canada and Mexico – America’s neighbours and close friends – may well be thrown into recession.

With Team Trump shamefully shuttering foreign economic aid and others cutting back assistance due to tight budgets, plus weakness generating lower commodity demand, Africa and the poorest nations will be hurt as well.

Pity the IMF’s World Economic Outlook forecasting team. It will have to mark down its global forecasts amid the height of uncertainty. The Global Financial Stability Report, pointing to the latest worldwide financial market turmoil, will rightly tell us that these events constitute a potentially lethal cocktail for significantly dampened investment and increased market volatility and short-termism, if not instability and panic.

The Fund’s fiscal minders will correctly rail with even more vituperation against excess leverage and the mistaken path many highly indebted countries, including the US, are embarked on.

Only China benefits if US backs away from the IMF

The IMF faces an existential moment. Project 2025 called for US withdrawal from the Fund and the administration has seemed to revel in retaliating against critics. The Fund’s activities vitally support US national security and economic interests and are a great deal for America. The only winner in any effort by America to back away from the IMF would be China.

Yet, the Fund’s very ethos – a stalwart defender of multilateralism and megaphone for fiscal rectitude – is in many respects contrary to Trump’s agenda. The Fund is supposed to use its bully pulpit to call out misbehaviour, especially for its largest shareholder. But it will encounter challenges in criticising a thin-skinned administration and trying to avoid putting a bullseye on its back. Mind the gap!

US leadership has been key for an economic order that produced decades of unprecedented global gains in living standards. Admittedly, that order has been fraying in recent decades and the US record is hardly without blemish. But the Trump administration appears intent on jettisoning it.

The IMF meeting delegates will inveigh against, fret about and seek answers to America’s sorrowful abandonment of the foundations that have generated global prosperity. They will flatter and plead with the Trump administration to change course to little avail and leave with perhaps no more clarity than with which they arrived.

At least Washington will be in bloom and the libations omnipresent!