IMF warns against Europe-US trade tit-for-tat

The International Monetary Fund (IMF) has warned that a potential escalation of the tariff dispute between the US and Western Europe over Greenland could harm global economic growth.

Pierre-Olivier Gourinchas, the IMF’s chief economist, offered words of caution on Monday during the launch of the updated World Economic Outlook (WEO) report.

“If we were to enter a phase in which there were escalation, and tit-for-tat policies, that would certainly have an even more adverse effect on the economy,” he said. Gourinchas argued that “there are no winners in a trade war,” urging both sides to find an “amicable solution.”

The warning follows an exchange of threats. US President Donald Trump had announced a 10% tariff, starting February 1, on imports from eight European NATO nations that oppose his bid to acquire Greenland.

This reportedly prompted the EU to deploy a package of retaliatory tariffs, dubbed the “trade bazooka,” targeting US imports.

The €93 billion retaliation package had been prepared last year in response to Trump’s first tariff salvo and was shelved after a tentative US-EU trade deal was struck last summer.

An EU diplomat told Reuters the package could “automatically come back into force on February 6” if no agreement is reached.

Gourinchas noted that the agreement had reduced trade tension, which helped mitigate the effect on the global economy and ultimately beat the initial negative projections made when the tariffs were first announced.

The comments come as world leaders prepare to gather in Davos, Switzerland, for the annual World Economic Forum.

According to the IMF’s latest World Economic Outlook, global economic growth is expected to remain resilient. It projects a 3.3% rate for 2026 and 3.2% for 2027, rates similar to the estimated 3.3% growth in 2025. Last year’s performance was supported by a surge in artificial intelligence investment.