Shipping Containers
© Global Look Press / Jacek Sopotnicki
The fund suggests alternative ways to address concerns about trade imbalances that better support global growth, noting that trade tensions are dimming the fund's global growth outlook.

Tempting as it might be to think a stronger dollar offsets higher US tariffs by making Chinese imports cheaper, the International Monetary Fund says the greenback's global prevalence tells a different story, reported Bloomberg.

Gita Gopinath, the IMF Chief Economist, said, "US importers and consumers are bearing the burden of the tariffs, the stronger US currency has had a minimal impact thus far on the dollar prices Chinese exporters receive because of dollar invoicing."

That runs counter to US President Donald Trump's assertions that China is paying steep import tariffs, and he has accused the country of devaluing the yuan to soften the impact.

The IMF said the average US tariff on Chinese goods is up about 10 percentage points since early last year and will climb another five points if new levies are enacted as Trump has threatened to do on 1 September.

Meanwhile, China's yuan has slid about 10 per cent versus the dollar, largely as a result of these trade actions and associated uncertainties and such flexibility allows it to help buffer trade shocks, said Gopinath.

"Higher bilateral tariffs are unlikely to reduce aggregate trade imbalances, as they mainly divert trade to other countries," said the IMF

The IMF said that higher bilateral tariffs will instead harm both domestic and global growth by sapping business confidence and investment at the same time disrupting global supply chains, while raising costs for producers and consumers

The effects of a currency weakening are generally small within a 12-month period, with a 10 per cent depreciation against all currencies improving a country's trade balance by about 0.3 per cent per centof gross domestic product on average.

"In part, this reflects the fact that trade is largely invoiced in dollars, which means that for most countries export volumes tend to respond little to exchange rates in the short run," the IMF said.