The International Monetary Fund’s chief economist has a message for governments playing chicken with tariffs: everybody loses. Pierre-Olivier Gourinchas warned that escalating trade threats, particularly from the US against European NATO allies, could trigger a chain reaction that damages global growth, spooks consumers, and sends financial markets into repricing mode.
The warning landed during the IMF’s release of its World Economic Outlook update in late January 2026. And while the Fund’s baseline forecast still projects global growth at 3.3% for this year, Gourinchas made clear that baseline assumes cooler heads prevail.
The spiral nobody wants
Gourinchas used the phrase “spiral of escalation” to describe where current tensions could lead. The tariff threats in question stem from the Trump administration’s recent moves targeting European allies, a development that has injected fresh uncertainty into transatlantic trade relations.
Full escalation, Gourinchas warned, could lead to financial market repricing and increased uncertainty, with asset prices that currently reflect a relatively stable trade environment needing to adjust to reflect a world where major economies are actively trying to hurt each other’s exports.
