The International Monetary Fund has warned that the COVID-19 epidemic is a greater threat to central banks in emerging markets than the global trade war.
Emerging economies face complex shocks as trade tensions increase, especially with historically high tariffs imposed by the United States. These economic shocks threaten financial stability, growth and inflation.
The current situation is made even more dangerous by the fact that many nations in the region are still suffering from the effects of pandemic.
IMF officials claim that the different impacts of tariffs on trade creates unique policy challenges for emerging market central banks, complicating their capacity to respond.
Tariffs have reached levels never seen in the past century during this current trade war. This is largely due to U.S. policy under Donald Trump.
The IMF stated in April 2025 that the tariffs were significantly reducing global economic growth. Forecasts for the United States for this year have been reduced from 2,7% to 1,8%.
Globally, the ripple effect is felt, but in emerging markets, such as India, Brazil and Thailand, they are particularly susceptible due to their dependence on international trade and foreign investments.
The trade war is asymmetrical, whereas the COVID-19 Crisis prompted global monetary easement. Some countries are faced with inflationary pressures and others face deflationary threats.
The COVID is not a real threat, but trade wars are
In the face of COVID-19, emerging market central banks were able implement swift policy measures, including slashing their interest rates and injecting liquid into their economies.
While the crisis was severe, it had an impact that was fairly uniform around the world, which allowed for coordinated actions.
The trade war has uneven effects, leading to a variety of different economic problems.
In a recent press release, IMF’s First Deputy Director Gita Gopinath stressed that shocks to tariffs can make it harder for emerging market countries to respond.
For example, some countries that are heavily dependent on exports, such as the U.S. and China, face a declining market, while other nations, which have to deal with higher import inflation because of increased costs, struggle to maintain growth, without sacrificing price stability.
According to the IMF this complexity makes the trade war for central banks a “greater challenge” than pandemic.
The implications for central banks in emerging markets
There are many policy challenges facing central banks in emerging markets.
Raising the interest rate to fight inflation can stifle economic growth. This is especially true in countries with high debt levels.
In contrast, lower rates could worsen currency depreciation, and even capital outflows. This is especially true as the U.S. Dollar strengthens in response to trade tensions.
IMF warned these central banks that they face “rising uncertainties and uneven impacts,” making it hard to chart a path for the future.
The trade war also exacerbates vulnerabilities that already exist in emerging markets such as high debt levels and tightening of financial conditions.
World Trade Organization has also reduced its forecast for 2025 growth in global merchandise trade to 0.2%, down from 3.0% previously. This could have severe ripple effects on other countries if tariff retaliation increases.
Emerging markets are also concerned about the global economy.
IMF forecasts show slower growth in the U.S. and higher inflation, while China is facing deflationary forces due to tariffs.
IMF warned that if there are no concerted efforts made to reduce trade tensions globally, economic damage could worsen, and emerging markets would be the worst affected.
The IMF’s position on this post Trade War poses greater threats than COVID to emerging market central bankers: Updates may occur
