China, US trade row could threaten global confidence, investment: Christine Lagarde

A day after a top International Monetary Fund(IMF) official said China, US were engaged in a phoney war over trade, the director of the world monetary body Christine Lagarde the dispute could threaten global confidence and investment.

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"When investors do not know under what terms they will be trading, when they don't know how to organise their supply chain, they are reluctant to invest," director of IMF Christine Lagarde said.

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In a report, the IMF had said tariffs or other barriers leading to a 10 per cent increase in import prices would lower global output by about 1.75 per cent after five years and by close to 2 per cent in the long term.

"The actual impact on growth is not very substantial, when you measure in terms of GDP," Lagarde said on tariffs, adding that the "erosion of confidence" would be worse.

However, even as China and US sparred over trade, Maurice Obstfeld, Economic Counsellor and Director of the Research Department at the IMF had said on Wednesday that both countries were engaged in a "phoney war"

"You know, at this point, although some warning shots have been fired, it is more of a phony war," Obstfeld had said.

Lagarde said the trade tensions would be a major topic of discussion among finance ministers and central bank governors at the IMF and World Bank meetings.

"My suspicion is that there will be many bilateral discussions to be had between the various parties involved," Lagarde said, adding that the issue would also be discussed in larger sessions involving the Fund's 189 member countries.

"Investment and trade are two key engines that are finally picking up. We don't want to damage that," Lagarde said.