Donald Trump’s trade war could wipe up to half a trillion dollars off the global economy and financial markets are too complacent about the risk, the International Monetary Fund has warned.

Unveiling the Fund’s latest outlook on Monday, the IMF’s economic counsellor, Maury Obstfeld, said the global economy was set to grow at 3.9 per cent this year and next, which would be its highest growth rate since 2011.

But Mr Obstfeld also warned that the US President’s tariff hostilities were “the greatest near-term threat to global growth”.

He said that IMF modelling shows global output could be about 0.5 per cent below current projections by 2020 if threatened tariffs materialised and business investment fell as a result.

With the IMF projecting global GDP to be around $100 trillion (£75 trillion) in 2020, that implies a cost of $500bn.

Despite Donald Trump’s declaration that “trade wars are good and easy to win”, Mr Obstfeld added that the US was “especially vulnerable” because it would be “the focus of global retaliation” and a larger share of its exports would face higher tariffs.

The IMF’s managing director, Christine Lagarde, warned earlier this year that that US was in danger of “tearing apart” the post-war global economic system.

On Monday, Mr Obstfeld also identified political uncertainty in Europe and, dangers around Brexit as the UK’s EU departure date gets closer along with other significant global economic risks.

“Financial markets seem broadly complacent in the face of these contingencies, with elevated valuations and compressed spreads in many countries,” said Mr Obstfeld.

“Asset prices are no doubt buoyed, not only by easy financial conditions, but by the generally still satisfactory global growth picture. They therefore are susceptible to sudden re-pricing if growth and expected corporate profits stall.”

The IMF’s trade war warning follows recent modelling work from the Bank of England, presented by Mark Carney, suggesting that a 10 per cent point hike in tariffs around the world could wipe up to 2.5 per cent off global growth over three years.

In line with the IMF’s recent willingness to criticise wealth and income inequality Mr Obstfeld also said: “The widespread political malaise driving many current policy risks, including on the trade front, has roots in several countries’ experiences of non-inclusive growth and structural transformation, heightened by the financial crisis of 2007-09 and the difficulties that followed.”

In 2018, the Trump administration has already imposed large steel and aluminium tariffs on US allies in the EU, Canada and Mexico, citing national security concerns, and is also threatening to impose severe new levies on EU car imports, even though this is very likely to harm the American employees of overseas manufacturers.

But the biggest target for the Trump White House is China, where the US is imposing levies on imports of $50bn a year, and is threatening to extend this to potentially all of the US’s $500bn a year of Chinese goods imports.

Relative to its April forecast, the IMF cut its 2018 UK GDP growth forecast from 1.6 per cent to 1.4 per cent.