U.S. Markets close in 5 hrs 43 mins

Christine Lagarde sums up Trump's hold over the US-China trade war

Lianna Brinded
Head of Yahoo Finance UK
USA and China trade war. Photo: Getty

One of the world’s most powerful women, Christine Lagarde, reemphasised how the US-China trade war will negatively hit the global economy and that US president Donald Trump hold’s the key to alleviating that impact.

Lagarde, who left her position as head of the International Monetary Fund (IMF) to takeover as the European Central Bank (ECB) chief, told US network CBS in a televised interview that the biggest issue surrounding the US-China trade war is uncertainty and that Trump has “has many keys that would unlock the uncertainty and the risks.”

“I think the biggest key that President Trump has is in relation to predictability and, and certainty of the terms of trade. It's the unknown which is hurting, because you can't adjust to the unknown. So what do you do? You build buffers. You build savings. You wonder what comes next. That's not propitious to economic development,” she said.

READ MORE: IMF projects slowest global growth since the crisis amid trade, geopolitical tension

She highlighted that the level of uncertainty in the global economy risks a worldwide recession because investors “sit on their cash.”

“The IMF, the International Monetary Fund, which Christine Lagarde led for eight years, says the instability caused by the US-China trade war is the main reason why global growth is estimated to fall this year to its slowest pace since the 2008 financial crisis,” she said. “Last week, President Trump announced preliminary steps to a partial deal with China. But the biggest and toughest issues remain.”

Earlier this month, the IMF said that the global economy grew at its slowest pace since the financial crisis of 2008 and subsequently slashed its forecast for growth. It said world growth would be at just 3% this year — down from its July forecast of 3.2%. It blamed trade fights, Brexit uncertainty, and other issues.

Looking forward, Lagarde says, regardless, the US-China trade war is going “to give a big haircut to the global economy” and that means less investment, less jobs, more unemployment, reduced growth.”