IMF Warns: Trump Tariffs Could Trigger Global Economic ‘Spiral’

By Staff, Agencies

The International Monetary Fund [IMF] warned that Donald Trump’s tariff threats over Greenland could spark a “spiral of escalation,” harming the global economy and triggering a sharp financial market sell-off.

Amid Trump’s tariff threats on NATO allies over Greenland, the IMF said renewed trade tensions are a major risk to 2026 global growth.

IMF chief economist Pierre-Olivier Gourinchas warned a US-Europe “spiral of escalation” would hit households on both sides of the Atlantic, noting, “There are no winners in a trade war.”

At the IMF’s World Economic Outlook [WEO] launch, Gourinchas urged an “amicable solution,” warning that tit-for-tat escalation would further harm the economy.

The IMF’s warning comes ahead of the World Economic Forum in Davos, where Managing Director Kristalina Georgieva is expected to seek ways to ease tensions with Washington.

In an update of its WEO report published in October, the IMF said the powerful headwinds from global trade tensions in 2025 had been offset by surging investment in technology – including artificial intelligence – in the US and Europe.

The IMF projected global growth at 3.3% in 2026 and 3.2% in 2027, similar to 2025, as AI-driven investment helped offset trade tensions.

However, the IMF’s forecasts were finalized in December before a surge in geopolitical tensions early in 2026, including the US seizure of Venezuela’s president, Nicolas Maduro, protests in Iran and Trump’s threats over Greenland.

The IMF’s forecasts assume a drop in US tariffs in 2026-27, following a year where AI investment helped the global economy avoid major fallout. Gourinchas warned a trade war could trigger market “repricing,” with global markets hitting record highs due to tech sector inflows.

The IMF warned that a trade war could force investors to reassess market values, creating uncertainty that hurts business, investment, and consumption.

Despite trade tensions, the fund upgraded US growth to 2.4% in 2026, boosted by tech investment, and left the UK’s forecast steady at 1.3% this year and 1.5% next, with officials noting it positions Britain as the fastest-growing European G7 economy.

However, rising geopolitical tensions and a full-scale trade war could derail IMF forecasts, potentially harming growth if tariffs and conflicts escalate, Gourinchas warned.