WASHINGTON, Oct 13 — Finance chiefs gathering in Washington, the United States (US), this week were ready to discuss the global economy's surprising resilience in the face of Donald Trump's tariff assaults — until US-China trade war rhetoric reignited with the US President threatening 100 per cent duties on Chinese imports and whipsawing financial markets.
The annual meetings of the International Monetary Fund (IMF) and World Bank are now certain to be dominated by questions over whether Trump's vow to retaliate against China's dramatically expanded export controls on rare earths will plunge the world's two largest economies back into a full-blown trade war.
Trump said his new tariffs and export curbs would take effect on November 1 and threatened to cancel a meeting with Chinese President Xi Jinping later this month in South Korea. The duties would shatter a delicate truce crafted by Washington and Beijing over five months that brought tariffs down from triple-digit levels and prompted improved IMF global growth forecasts.
On Monday, US Treasury Secretary Scott Bessent sought to walk back the threat, telling Fox Business Network that he believed the Trump-Xi meeting would proceed and that there would be US.-China staff-level meetings this week on the sidelines of the IMF and World Bank gathering.
"The 100 per cent tariff does not have to happen. The relationship, despite this announcement last week, is good.
"Lines of communication have reopened, so we will see where it goes," he said.
Bessent added that the US would "stand firm" against the new global Chinese rare earths export controls, while Trump said on the Truth Social media site on Sunday: "Do not worry about China, it will all be fine!"
Volatile markets
The softer tone sparked a strong rebound in US stocks at the start of trading in New York on Monday, with the tech-heavy Nasdaq Composite index up more than two per cent and other major indexes up more than one per cent.
Trump's threat on Friday sparked a major sell-off at a time when investors and top policymakers were already growing anxious about a frothy stock market fueled by an artificial intelligence investment boom that some officials fear could hurt future employment.
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 is now with the Atlantic Council, said Trump's threats may be posturing for negotiating leverage, but said they will inject volatility into the week's proceedings.
"Let us hope that sanity prevails. If Trump goes back to 100 per cent tariffs on Chinese goods, there is going to be a lot of pain in the markets for him," he said.
While China has some leverage over Trump due to its global dominance in rare earths, which are essential to tech manufacturing, Muehleisen said it is not in Beijing's interest to plunge back into a triple-digit tariff environment.
Growth forecasts hold up
Prior to the escalation on Friday, IMF Managing Director Kristalina Georgieva had touted the global economy's ability to withstand multiple shocks, from tariff costs and uncertainty to a slowing US job market, rising debt levels, and rapid shifts driven by AI's rapid adoption.
In a preview of the IMF's World Economic Outlook forecasts due on Tuesday, she said last week that global GDP growth in 2025 would be only slightly lower than the 3.3 per cent in 2024.
Based on tariff rates that were lower than initially feared — including the US-China duties — the IMF in July raised its 2025 GDP growth forecast by two-tenths of a percentage point to 3.0 per cent.
"What we are seeing is demonstrable resilience in the world. But we are also saying it is a time of exceptional uncertainty, and downside risks are still dominating the forecast.
"So watch it, do not get too comfortable," Georgieva told Reuters in an interview.
G7 focus on Russia
Finance ministers from the Group of Seven (G7) industrial democracies are expected to meet on Wednesday to discuss efforts to step up sanctions pressure on Russia aimed at ending Moscow's war against Ukraine.
A British government source said that Finance Minister Rachel Reeves wanted to ensure joint action with G7 and European Union countries to cut Russia's energy revenues and to restrict Russia's access to overseas assets that comply with international law.
Among the options G7 ministers will discuss is a European Union plan to use Russian frozen sovereign assets to back a €140 billion (RM685.4 billion) loan to Ukraine.
Bessent's agenda for institutions
The US footprint at the meetings will be large, extending from tariff discussions to Bessent's calls for the IMF and World Bank to pull back from climate and gender issues to focus on their core missions of financial stability and development.
The meetings will be the public debut for Dan Katz, the IMF's new No. 2 official. Member countries will be watching to see how Katz, a former investment banker who was Bessent's chief of staff, carries out the US Treasury chief's agenda, which also calls for stronger IMF criticism of China's state-led economic policies.
The US Treasury's market intervention on behalf of Argentina, the IMF's largest borrower, will also take prominence at the meetings as Argentina's right-wing libertarian President Javier Milei will join his ally Trump, two blocks away at the White House on Tuesday.
Georgieva welcomed the move to keep Argentina's market-based reforms on track.
But Muehleisen said the Fund risks being pushed by its largest shareholder to enforce Trump's geopolitical goals — ratcheting up pressure on China and potentially extending more aid to US allies like Argentina without adequate reforms.
"Is it really still a global, multilateral organisation, or is it becoming a bit more of an appendage of the US Treasury?" he said.
