The U.S.-China trade conflict could deliver a "shock" to already struggling emerging markets, raising the prospect that the crises in Turkey and Argentina could spread across the developing world, the managing director of the International Monetary Fund (IMF) has warned.
Christine Lagarde told the Financial Times in an interview published Wednesday that her staff does not yet see "contagion" spreading to multiple countries beyond those currently fighting investor flight.
But she warned that "these things could change rapidly" and cited the "uncertainty (and) lack of confidence already produced by the threats against trade, even before it materializes" as one of the main dangers facing the developing world.
Lagarde said an increase in tariffs would have a "measurable impact on growth in China" and "trigger vulnerabilities" among China's Asian neighbors because of their integrated supply chains.
The adverse impact in the United States would mostly be felt by the "low-income people within the consumer population" who would be hit by higher prices on a wide range of goods, she said.
"It would add a shock to a situation where there is no contagion but there are fragmented vulnerabilities. It would add an additional shock to it," she said.
"Trade is a positive, trade is a plus, trade needs fixing certainly but it is a tool and an engine for growth that should not be under threat, particularly at the moment," Lagarde told the newspaper.
