Ifo Institute Chief Warns of Economic Crisis Due to Rising Protectionism

The Ifo Institute in Munich has raised alarms about the potential emergence of a new global economic crisis driven by an increase in protectionist policies worldwide. Clemens Fuest, the head of the institute, expressed concerns that if major economies like the United States, China, and Europe adopt protectionist measures, the risk of a significant economic downturn could become a reality.

Fuest emphasized that this scenario poses a considerable threat, especially if multiple countries choose to pursue misguided economic strategies. He noted that while the United States alone could not trigger a global economic collapse, the current trends are troubling and signal serious risks for the international financial system.

According to Fuest, the United States is currently undermining its reputation as a dependable trading partner, a shift that could have dangerous implications given its status as the world's leading economic power. Recently, U.S. President Donald Trump enacted a series of tariffs that have alarmed global markets and raised fears of an impending trade war.

In a surprising move, Trump announced a temporary suspension of several tariffs for a period of 90 days. However, significant tariffs on Chinese imports remain in effect, indicating ongoing tensions between the two largest economies.

Fuest speculated that the decision to delay certain tariffs might be influenced by the declining value of U.S. Treasury bonds, suggesting an urgent need for the U.S. to reassess its economic policies. He pointed out that the stakes are high, as the American stock market accounts for two-thirds of global market capitalization, and the U.S. dollar serves as the world's primary reserve currency. Any instability in these areas could have unpredictable and far-reaching consequences.

Furthermore, Fuest commended the European Union for adopting a measured response to the U.S. tariffs, contrasting it with China's more aggressive stance. He believes that maintaining a calm and calculated approach is essential for fostering stability in the current volatile economic climate.

Despite the turmoil caused by Trump's tariff policies, recent trends in U.S. stock markets have shown some signs of recovery. After a week marked by significant fluctuations, markets closed on a positive note, although the ongoing tariff discussions continue to dominate market sentiment and are likely to remain a central issue in the foreseeable future.

In light of these developments, former German finance minister Peer Steinbrück has also criticized Trump's trade policies, describing them as detrimental to the U.S. economy. He argues that the tariffs, combined with Trump's tax policies and immigration stance, could contribute to rising inflation and further economic challenges.

As the situation evolves, experts urge vigilance and a cooperative approach to trade relations to mitigate the risks of a full-blown economic crisis.