The International Monetary Fund has warned that U.S. economic policies under incoming President Donald Trump could hit the rest of the world and ultimately backfire in the United States.

The International Monetary Fund said a wave of tariff threats could exacerbate trade tensions, reduce investment, hit market pricing, distort trade flows and disrupt supply chains.

While tariffs, tax cuts and deregulation may boost the U.S. economy in the short term, they could also trigger inflationary booms and busts, the report said.

That could weaken safe bets on U.S. Treasuries, it added.

With Donald Trump about to enter the White House, the risk component dominates the International Monetary Fund's twice-yearly world economic forecasts.

When Trump took office last time, he launched a trade war with China, and U.S. policies led to tit-for-tat tariffs with the European Union.

This time, Trump threatens tariffs Countries include China, Mexico and Canadaand said he would Impose 100% tariff on BRICS countries Nine countries if they were to create a currency to compete with the US dollar.

While the International Monetary Fund estimates that these measures, along with tax cuts and deregulation, could boost the U.S. economy in the short term, there are also some unusually serious warnings that these measures could affect the rest of the world and ultimately the United States.

It warned that a U.S. inflationary boom could be followed by a bust, which could "undermine the role of U.S. Treasuries as a global safe asset."

Investors view U.S. Treasury bonds as one of the safest investments because these bonds (sort of like IOUs) are backed by the U.S. government.

Furthermore, if business red tape is cut too much, it could cause the dollar to spiral out of control, sucking money out of emerging economies and thus curbing global growth.

Trump's continued deportation of illegal immigrants could "permanently reduce potential output" and increase inflation.

The International Monetary Fund expects global economic growth to be 3.3% in both 2025 and 2026, lower than the historical average of 3.7%.

Its forecast for 2025 is largely unchanged from its previous forecast, mainly because it expects higher U.S. economic growth than previously forecast, offsetting lower growth in other major economies.

Thursday, World Bank also warns U.S. tariffs could hit trade and curb global growth this year.

The bank expects global economic growth of 2.7% in 2025, which would be the weakest performance since 2019, apart from the sharp contraction seen at the height of the COVID-19 pandemic.

In the UK, the International Monetary Fund predicts economic output will grow by 1.6% in 2025, slightly higher than the 1.5% forecast last October.

Chancellor of the Exchequer Rachel Reeves said the UK is "expected to be the fastest-growing major European economy over the next two years and is the only G7 economy besides the United States to raise its growth forecast for this year."