Washington: With US-China frictions hanging over its annual meeting, the International Monetary Fund on Thursday warned governments to avoid harming trade and investment, which have been key drivers of the global economic recovery.

IMF chief Christine Lagarde said escalating trade tensions could reverberate through the world economy, undermining confidence and choking off investment, urging the resolution of the disputes through dialogue.

“Investment and trade are two key engines that are finally picking up. We don’t want to damage that," she said at a press briefing to open the spring meetings of the IMF and World Bank.

In its latest World Economic Outlook this week, the IMF listed the trade tensions as a key downside risk to the otherwise encouraging global recovery and warned they could harm the poorest the most through rising prices.

The outlook cites growing trade volumes and solid investment as driving the uptick in global growth to 3.9% this year and next.

US President Donald Trump last month imposed steep tariffs on steel and aluminum imports and threatened to impose more on tens of billions of dollars in Chinese imports, prompting Beijing to slap duties on US goods like pork and sorghum and to threaten even more sensitive US exports like soybeans.

Finance officials from member governments will discuss the trade disputes this week during the Washington meetings, which end Saturday. Lagarde said the disputes threatened to cause damage beyond the two countries involved, due to the interconnected nature of global supply chains.

While she acknowledged “the actual impact on growth is not very substantial when you measure in terms of GDP," she said the dispute could erode business confidence very quickly because of the uncertainty, which would make businesses “reluctant to invest."

International cooperation “has served us so well and delivered more progress for more people than at any time in history," but is now being questioned, Lagarde said. While she welcomed bilateral discussions between Washington and Beijing, she said disagreements should be resolved in a multilateral forum and every country should address its own trade barriers.

Lagarde again urged countries to “steer clear of all protectionism," saying that “unilateral trade restrictions have not proven helpful." Instead, “countries should work together to resolve disagreements without using exceptional measures."

EU Economic Affairs Commissioner Pierre Moscovici expressed optimism that US officials were coming around on resolving the trade issues. “My feeling is that, little by little, the consciousness of the damage a trade war could do will be apparent and dialogue will resume," he told AFP on the sidelines of the meeting.

“I hope that these IMF meetings will be marked by this spirit. On the American side, it seems to me that the climate is more receptive to the idea that protectionism is not the answer." Europe was also hit by the steel and aluminum tariffs but the US suspended the duties on imports from the EU, Canada, Mexico and four other countries, leaving China as the primary target.

German finance minister Olaf Scholz met with US vice president Mike Pence and Trump economic adviser Larry Kudlow at the White House, and afterwards told reporters that “all sides are really working on finding a good solution."

“I am convinced that it’s a good thing there are so many talks and that this is the basis for seeing a reasonable development in the end." Speaking later to a small group of reporters, Lagarde said the IMF has a role to play as mediator and as “a peaceful and technical forum for dialogue."

“I think that if we can help facilitate a dialogue, productive exchanges going to solutions, it would avoid a trade war," she said.

She praised the trade reforms recently offered by China’s president Xi Jinping—including lower tariffs on US cars, reducing investment restrictions and protections for intellectual property—which she said were “going in right direction."

But it will be the implementation that matters, she said. Reuters

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