In Greek mythology, Sirens used to lure sailors to their destruction with seductive songs. The analogy has not been lost on Christine Lagarde, the managing director of the International Monetary Fund.
Warning of the rise in unilateralism and protectionism, she confirmed that the IMF would likely downgrade its global growth forecast next week after urging governments to de-escalate disputes.
The final part was a direct shot aimed across the bows of both the United States and China as trade tensions continue to escalate.
“History shows that, while it is tempting to sail alone, countries must resist the siren call of self-sufficiency … because as the Greek legends tell us, that leads to shipwrecks,” Lagarde said a week before the IMF and the World Bank hold their annual meeting on the Indonesian island of Bali.
“The stakes are high because the fracturing of global value chains could have a devastating effect on many countries, including advanced economies,” she added in Washington on Monday.
Former French Finance Minister Lagarde then pointed out that the economic climate has changed significantly since last year’s get-together.
During the past eight months, relations between Washington and Beijing have become frosty with multi-billion-dollar tit-for-tariffs fueling a new Cold War.
The rise in trade barriers “is hurting not only trade itself, but also investment and manufacturing as uncertainty continues to rise,” Lagarde stressed.
“In July, we projected 3.9% global growth for 2018 and 2019,” she said. “The outlook has since become less bright, as you will see from our updated forecast next week.”
Chinese imports worth nearly US$260 billion have already been targeted by President Donald Trump’s administration in response to a ballooning trade deficit and concerns about intellectual property rights violations.
To add to the war of words, Washington has also singled out the “Made in China 2025” policy and the Belt and Road Initiative, which is at the heart of President Xi Jinping’s foreign policy.
Reaction and retribution have been swift from both sides.
Last week, Foreign Minister Wang Yi made it clear at the United Nations that Beijing would not be “blackmailed” into backing down.
“Protectionism will only hurt oneself, and unilateral moves will bring damage to all,” he told the UN general assembly gathering of world leaders in New York.
“The relationship between our two countries is a common asset. It must be preserved and valued. It’s the result of generations of people’s efforts [and] is like a glass. It’s easy to break it,” he added.
On Monday, Trump announced he would continue to apply pressure on China after thrashing out a NAFTA 2.0 trade deal, known as the US-Mexico-Canada Agreement or USMCA.
He told a media conference that he wanted to open negotiations with Beijing but insisted it was “too early to talk.”
“They have been ripping us off for so many years,” he added.
But the trade brawl is not the only blot on the economic landscape. A tidal wave of debt is threatening to swamp global growth.
“[Debt levels] have reached an all-time high of $182 trillion – almost 60% higher than in 2007,” Lagarde said.
In Homer’s The Odyssey, beeswax was placed in the ears of Odysseus’s men to muffle the enchanting arias from the spell-spinning Sirens. A heavy dose of ‘reality’ could accomplish the same thing in Washington, Beijing and Bali in the weeks and months ahead.