IMF's Gita Gopinath Warns U.S. Trade War Threatens Emerging Economies

On June 5, 2025, Gita Gopinath, First Deputy Managing Director of the International Monetary Fund (IMF), stated that the ongoing U.S. trade war presents a more significant challenge to emerging market economies than the COVID-19 pandemic did. In an interview with the Financial Times, Gopinath emphasized the complexities and uncertainties introduced by escalating trade tensions, which complicate policy responses and threaten financial stability in these economies.

Gopinath highlighted that, unlike the synchronized monetary easing during the pandemic, the current trade war's uneven economic impacts and inflationary risks make it more difficult for emerging market central banks to respond effectively. Tariffs and shifting policy directions have increased uncertainty, leading to potential capital outflows, currency depreciation, and higher financing costs in these markets. Additionally, the rise of cryptocurrencies and stablecoins poses new risks to financial systems and currency stability.

The Organization for Economic Co-operation and Development (OECD) has revised its global economic outlook, forecasting the weakest growth since the COVID-19 pandemic, attributing the slowdown primarily to President Donald Trump's ongoing trade war. Global GDP growth is now expected to be just 2.9% in 2025 and 2026, below recent averages. The U.S. economy is projected to decelerate sharply from 2.8% in 2024 to 1.6% in 2025 and 1.5% in 2026, compounded by inflation expected to reach nearly 4%, delaying potential Federal Reserve rate cuts. The report criticizes unprecedented tariff hikes, with U.S. average effective tariff rates rising from 2.5% to over 15%, the highest since World War II.

Emerging market economies are particularly vulnerable to the effects of the trade war. The OECD warns that economic prospects and investor sentiment could precipitate disruptive capital movements. Tariffs and shifting policy directions have increased uncertainty, leading to potential capital outflows, currency depreciation, and higher financing costs in these markets. Despite recent rebounds in currencies and equity markets due to investor sentiment toward monetary easing, volatility remains high.

Gopinath also highlighted the growing risk posed by cryptocurrencies and stablecoins, which could disrupt traditional financial systems and undermine currency stability. While emerging markets have strengthened institutions and adopted inflation-targeting regimes, their economies remain highly vulnerable to global financial shifts.

During the COVID-19 pandemic, emerging market central banks were able to implement synchronized monetary easing to support their economies. In contrast, the trade war introduces uneven economic impacts and inflationary risks, complicating central banks' responses. The unpredictable nature of trade policies and broader global economic conditions poses substantial risks for emerging markets' monetary stability.

The OECD emphasizes the urgent need for trade agreements and increased investment to support global recovery. Addressing trade tensions through international cooperation could mitigate some of the adverse effects on emerging markets.

Gita Gopinath's remarks underscore the profound challenges that the U.S. trade war poses to emerging market economies, surpassing those experienced during the COVID-19 pandemic. The combination of trade tensions, financial volatility, and the rise of digital currencies necessitates coordinated policy responses and international collaboration to safeguard global economic stability.