Trump’s reignited trade war with China clouds IMF, World Bank meetings

By David Lawder

WASHINGTON (Reuters) – Finance chiefs meeting in Washington this week were poised to discuss the global economy’s surprising resilience in the face of Donald Trump’s tariff attacks – until the U.S.-China trade war erupted again as the U.S. president threatened 100% tariffs on Chinese imports, sending markets into turmoil.

The annual meetings of the International Monetary Fund and the World Bank are certain to be dominated by questions about whether Trump’s promise to retaliate against China’s significantly expanded export controls on rare earths will drag the world’s two largest economies back into a full-blown trade war.

A fragile truce signed between Washington and Beijing over the past five months has brought tariffs down from triple-digit levels and led to improvements in the IMF’s global growth outlook. Trump’s plans to meet with Chinese President Xi Jinping later this month have raised hopes that the ice will thaw further.

But that optimism was shattered on Friday when Trump threatened to cancel the meeting and impose a “massive increase” in tariffs on Chinese goods, among other countermeasures.

China’s move on Friday to match new U.S. port charges for Chinese-built or owned ships with its own taxes on port calls by ships built or marked in the United States or owned by companies more than 25% owned by U.S.-based investment funds also made the mood worse.

The IMF and World Bank meetings will bring more than 10,000 people to Washington, including finance ministers and central bank governors from more than 190 countries.

Former IMF strategy chief Martin Muehleisen, who currently serves at the Atlantic Council, said that Trump’s threats may be for bargaining purposes, but these threats will add volatility to the course of the week.

“I hope sanity prevails. If Trump imposes 100 percent tariffs on Chinese goods, there will be a lot of pain in the markets for him,” Muehleisen said.

Trump’s threat on Friday triggered the biggest U.S. stock selloff in months, at a time when investors and top policymakers were already worried about the frothy stock market fueled by the U.S. investment boom. artificial intelligence some officials fear it could harm future employment.

While China has some influence on Trump due to its global dominance of rare earth elements needed for technology production, Muehleisen said it is not in Beijing’s interest to return to an environment of triple-digit tariffs.

It’s unclear whether U.S. Treasury Secretary Scott Bessent, who is leading U.S.-China trade talks, will meet with any Chinese officials in Washington this week. A Treasury spokesman declined to comment on Bessent’s bilateral meeting schedule.

GROWTH FORECASTS ARE HEALTHY

Before Friday’s increase, IMF Managing Director Kristalina Georgieva had praised the global economy’s ability to withstand shocks, from tariff costs and uncertainty to a slowing U.S. job market, rising debt levels and rapid changes brought about by the rapid adoption of artificial intelligence.

The global GDP growth rate for 2025 will be only slightly lower than 3.3% for 2024, Georgieva said last week in a preview of the IMF’s World Economic Outlook forecasts to be released on Tuesday. Based on initially feared tariff rates (including US-China tariffs), the IMF in July raised its 2025 GDP growth forecast by two-tenths of a percentage point to 3.0%.

“What we are seeing is demonstrable resilience in the world,” Georgieva told Reuters in an interview. he said. “But we also say this is a period of extraordinary uncertainty and downside risks still dominate the forecast. So watch, don’t get too complacent.”

G7 FOCUSED ON RUSSIA

Finance ministers from the Group of Seven Industrial Democracy are expected to meet on Wednesday to discuss efforts to increase sanctions pressure on Russia aimed at ending Moscow’s war against Ukraine.

A British government source said finance minister Rachel Reeves wants to ensure joint action is taken with G7 and European Union countries to cut off Russia’s energy revenues and access to overseas assets in line with international law.

Among these options to be discussed by G7 ministers is the European Union’s plan to use Russia’s frozen state assets to support a 140 billion euro ($162 billion) loan to Ukraine.

BESSENT’S AGENDA FOR CORPORATIONS

The US’s influence at the meetings will be large and will range from tariff discussions to Bessent’s calls for the IMF and World Bank to withdraw from climate and gender issues and focus on their core missions of financial stability and development.

The meetings will be the public debut of the IMF’s new No. 2 official, Dan Katz. Member countries will see how Katz, a former investment banker who is Bessent’s chief of staff, carries out the agenda of the US Treasury chief, who has also called for stronger IMF criticism of China’s state-led economic policies.

Argentina’s right-wing libertarian President Javier Milei will join his ally Trump at the White House two blocks away on Tuesday, and the US Treasury’s intervention in the market on behalf of Argentina, the IMF’s largest debtor, will also be the focus of the meetings. This move, aimed at keeping Argentina’s market-based reforms on track, was welcomed by Georgieva.

But Muehleisen, the former IMF official, said the Fund risks being pressured by its largest shareholder to implement Trump’s geopolitical goals – increasing pressure on China and providing more aid to US allies like Argentina without adequate reforms.

“Is it still truly a global, multilateral organization, or is it becoming an extension of the U.S. Treasury?” he said. “This will be an interesting discussion.”

(Reporting by David Lawder; Additional reporting by Andrea Shalal and David Milliken; Editing by Dan Burns and Paul Simao)