US-China rivalry risks shattering the global economy, warns the IMF chief

Comment

PHNOM PENH, Cambodia – The global economy is splitting into rival blocs, threatening a Cold War rerun that would leave almost everyone worse, the International Monetary Fund chief said Saturday.

According to Kristalina Georgieva, the fund’s chief executive, US and European efforts to redesign global supply chains make sense if they help eliminate the kind of single-supplier dependency that proved so disruptive during the pandemic. But if the two powers erected new trade barriers to gain an advantage in their geopolitical context, they could trigger a destructive cycle that would harm the middle class and poor families while leaving the rich unharmed.

“My concern is a growing fragmentation of the world economy,” Georgieva said in an interview with the Washington Post. “We may be sleepwalkers in a world that is consequently poorer and less secure.”

Biden summit Asian partners were hit by US rate hikes, Chinese downturn

A world economy divided into opposing camps would shrink by 1.5%, or more than $ 1.4 trillion in annual terms, according to the IMF. In Asia, the center of global value chains for electronics, apparel and industrial goods, the percentage losses would be double, he said.

“I lived the first Cold War on the other side of the Iron Curtain. And yes, it’s pretty cold out there, “said Georgieva, born and raised in Bulgaria.” And going into a second cold war for another generation is … very irresponsible. “

Annual trade between the United States and China is still sizable, surpassing $ 600 billion. And the US and Chinese economies are so intertwined that Georgieva considers a complete breakup impossible.

But since former President Donald Trump began imposing tariffs on imports from China in 2018, talk of the US “decoupling” from the world’s second largest economy has increased. Both the United States and China have taken steps to become more self-reliant.

Under Chinese President Xi Jinping, for example, the Beijing government subsidized the development of domestic high-tech industries with mixed results. President Biden highlighted the reduction in the United States’ dependence on foreign suppliers for a number of products, including medical supplies, computer chips and rare earth materials, which are used to make smartphones, electric vehicles and fighter jets.

Treasury Secretary Janet L. Yellen is also doing this push. This week she went to India, promoting what she calls “friends’ livelihood” or relying on US allies for critical materials rather than potential adversaries like China.

The underlying challenge since 2020 is that the pandemic, extreme weather events and the war in Ukraine have disrupted dozens of assembly lines. The shortage of personal protective equipment, semiconductors and natural gas has convinced US and European officials that they have to pay more for redundant supply connections.

Economic ties with China take a back seat to national security

This diversification of supply chains after the pandemic made sense up to a point, Georgieva said. But when it goes “beyond economic logic, it would be detrimental to the United States and the rest of the world,” she added.

For example, he cited Trump’s tariffs on more than $ 300 billion of US imports from China, which the Biden administration has kept. Such measures have done nothing to reduce the US trade deficit with China, which Trump has promised to eliminate, and have left American consumers paying higher prices for Chinese products.

“It’s important to think carefully about actions and what they can generate as counter-actions, because once you’ve got the genius out of the bottle, it’s hard to put it back,” he said.

Although he believes “some reglobalisation is necessary,” political support for such efforts will only materialize if more is done to compensate for the workers who lose to the free flow of trade, in his eyes.

“If an entire industry moves overseas and there is no focus on people whose jobs are done, no effort to provide access to opportunities and new skills, then obviously there will be popular dissent,” he said.

However, if countries disrupted global trade ties and turned inward instead, such actions would only be a boomerang and harm those same workers by driving up prices, he said.

Georgieva, 69, has held the fund’s most important role since 2019. A former professor of economics, she has also held senior positions at the World Bank and the European Commission.

He spoke to The Post while attending a couple of Asian summits whose guests include President Biden and other world leaders. Together with the President of the United States, he plans to attend the next Group of 20 Leaders Summit in Bali, Indonesia, which should focus on addressing the economic aftershocks from the Russian invasion of Ukraine, develop plans to ease the debt for the poorest countries and addressing the slowdown in the global economy.

Leave a Reply

%d bloggers like this: