Trump tariff threat prompts IMF warning ahead of inauguration

The International Monetary Fund (IMF) has warned against the prospects of a renewed US-led trade war, just days before Donald Trump prepares to begin his second term in the White House.

The world's lender of last resort used the latest update to its World Economic Outlook (WEO) to lay out a series of consequences for the global outlook in the event Mr Trump carries out his threat to impose tariffs on all imports into the United States.

Canada, Mexico, and China have been singled out for steeper tariffs that could be announced within hours of Monday's inauguration.

Mr Trump has been clear he plans to pick up where he left off in 2021 by taxing goods coming into the country, making them more expensive, in a bid to protect US industry and jobs.

He has denied reports that a plan for universal tariffs is set to be watered down, with bond markets recently reflecting higher domestic inflation risks this year as a result.

While not calling out Mr Trump explicitly, the key passage in the IMF's report nevertheless cautioned: "An intensification of protectionist policies... in the form of a new wave of tariffs, could exacerbate trade tensions, lower investment, reduce market efficiency, distort trade flows, and again disrupt supply chains.

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"Growth could suffer in both the near and medium term, but at varying degrees across economies."

In Europe, the EU has reason to be particularly worried about the prospect of tariffs, as the bulk of its trade with the US is in goods.

The majority of the UK's exports are in services rather than physical products.

The IMF's report also suggested that the US would likely suffer the least in the event that a new wave of tariffs was enacted due to underlying strengths in the world's largest economy.

Read more: What Trump's tariffs could mean for rest of the world

The WEO contained a small upgrade to the UK growth forecast for 2025.

It saw output growth of 1.6% this year - an increase on the 1.5% figure it predicted in October.

Economists see public sector investment by the Labour government providing a boost to growth but a more uncertain path for contributions from the private sector given the budget's £25bn tax raid on businesses.

Business lobby groups have widely warned of a hit to investment, pay and jobs from April as a result, while major employers, such as retailers, have been most explicit on raising prices to recover some of the hit.

Chancellor Rachel Reeves said of the IMF's update: "The UK is forecast to be the fastest growing major European economy over the next two years and the only G7 economy, apart from the US, to have its growth forecast upgraded for this year.

"I will go further and faster in my mission for growth through intelligent investment and relentless reform, and deliver on our promise to improve living standards in every part of the UK through the Plan for Change."

(c) Sky News 2025: Trump tariff threat prompts IMF warning ahead of inauguration