xi and trump
US President Donald Trump is desperate to reduce his country's trade deficit with China, but according to the International Monetary Fund, the punitive tariffs he has launched on Beijing will not work.

In a new report released on Wednesday, the International Monetary Fund (IMF) said that countries looking to reset trade imbalances should address their own macroeconomic issues instead of launching barriers to trade.

"Attempts to target one bilateral trade balance through tariffs or other distortions is likely to be met with offsetting changes in the trade balances with other partners," the IMF report said.

In what could be viewed as a thinly-veiled challenge to Trump's protectionist policies, the Washington institution's World Economic Outlook report concluded the tariffs could make things worse.

The dense academic text does not directly refer to the US president, but appears to be a subtle rebuke to his views.

Trump has proudly declared himself "a Tariff Man". In addition to starting the trade war against China, he has issued metals tariffs on nations including US allies in the European Union, Canada and Mexico, and is mulling launching tariffs on the global automotive sector.

According to the IMF, the trade balance is largely determined by macroeconomic factors, including fiscal policy, credit cycles and, in some cases, exchange rate policies and trade subsidies. It is also a reflection of the international division of labour, the fund's new report concluded.

These factors accounted for more than 95 per cent of the change in the China-US trade balance between 1995 and 2015, according to the study, which also examined the trade policies of 63 countries and 34 industry sectors.

The report was published as Beijing and Washington head into what may be the final stages of their prolonged trade negotiations.

Chinese Vice-Premier Liu He is in the United States to launch the ninth round of negotiations with his US counterparts, including US trade representative Robert Lighthizer and US Treasury Secretary Steven Mnuchin.

The IMF argues that the US trade deficit is partly attributable to excessive spending. By contrast, China enjoys a strong comparative advantage in manufacturing, which helped exacerbate the deficit.

The IMF found that should the US and China increase current bilateral tariffs to 25 per cent, China's exports to the US would be reduced by 25 per cent.

US exports to China, meanwhile, would crash by 36.4 per cent. Such an increase would reduce annual gross domestic product by 0.6 per cent in the US and 1.5 per cent in China, the study found.

The IMF said that the US and China would "suffer the largest losses from their reciprocal tariff increases, due to the collapse in bilateral trade".

The US goods trade deficit with China rose 11.6 per cent to US$419.2 billion last year, the Office of the US Trade Representative said on Friday.

In a speech at the US Chamber of Commerce in Washington on Tuesday, the IMF managing director Christine Lagarde reaffirmed the fund's view that the most effective way to reduce a bilateral trade deficit is to steer clear of tariffs.

"Nobody wins a trade war," she said. "These are potentially self-inflicted wounds that should be avoided."

Lagarde warned of policy missteps, as the global economy "has lost further momentum". She warned that 70 per cent of the world economy is expected to experience a slowdown in growth over the next two years.

"It is a delicate moment, and we should be careful," she said.

On Tuesday, the World Trade Organisation forecast that the growth of global trade will slow to 2.6 per cent in 2019 from 3.0 per cent last year, citing new tariffs and trade retaliation, weaker economic growth, volatility in financial markets and tighter monetary conditions in developed countries.