An escalation of trade and tariffs tensions between the U.S. and China would have “costly” economic consequences around the world, according to Gita Gopinath, deputy managing director of the International Monetary Fund, who spoke to CNBC on Wednesday. She highlighted that geopolitically driven trade shifts are occurring globally, leading to changes in trade partnerships despite overall trade to GDP remaining stable.
Gopinath noted that the U.S. and China are trading less with each other, with some trade routes being redirected through other countries. Trade tensions have been rising between the U.S. and China, as well as between the European Union and China, resulting in increased tariffs on certain goods due to allegations of unfair trade practices.
The IMF’s modeling suggests that escalating tariffs would have negative impacts on all countries, leading to reduced output and inflationary pressures. Gopinath emphasized the importance of maintaining good working relations between the U.S. and China, as well as with the rest of the world, for mutual benefit.
IMF Managing Director Kristalina Georgieva previously stated that international trade no longer serves as the primary driver of growth and cautioned against retaliatory trade measures. Tim Adams, CEO of the Institute of International Finance, warned that proposed tariffs by U.S. presidential candidate Donald Trump could disrupt disinflation trends and result in higher interest rates.
The IMF’s World Economic Outlook report highlighted the risks associated with increasing protectionist policies, stating that a departure from a rules-based global trading system could escalate trade tensions, disrupt supply chains, and hinder medium-term growth prospects. Maintaining relationships and upholding a rules-based global trading system were emphasized as crucial for global economic stability.
