U.S.-China rivalry risks splintering global economy, IMF chief warns

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PHNOM PENH, Cambodia — The global economy is splitting into rival blocs, threatening a Cold War relapse that would leave almost everyone worse off, the head of the International Monetary Fund said on Saturday.

US But if the two powers build new trade barriers to gain an edge in their geopolitical competition, they could start a destructive cycle that would hurt middle-class and poor households while leaving the wealthy unscathed.

“My concern is a deepening fragmentation in the world economy,” Georgieva said in an interview with The Washington Post. “We may be slipping into a world that is poorer and less secure as a result.”

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A world economy card in opposing camps would shrink by 1.5 percent, 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, losses in percentage terms would be twice as large, she said.

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“I survived the first Cold War on the other side of the Iron Curtain. And yes, it is quite cold there,” said Georgieva, who was born and raised in Bulgaria. “And to go into a second cold war for another generation is … very irresponsible.”

The annual trade between the US and And the US it. And Chinese economies are so intertwined that Georgieva sees a complete breakdown as impossible.

But since former President Donald Trump began imposing tariffs on imports from China in 2018, talk of the U.S. Both the United States and China have taken steps to become more self-sufficient.

Under Chinese President Xi Jinping, for example, the government in Beijing has subsidized development of domestic high-tech industries with mixed results. President Biden emphasized reducing U.S.

Treasury Secretary Janet L. Yellen is also making the push. This week she traveled to India, promoting what she calls “friend-shoring,” 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 interrupted dozens of assembly lines. Shortages of personal protective equipment, semiconductors and natural gas have convinced US it. And European officials that they need to pay more for redundant supply links.

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Economic ties with China take a back seat to national security

The 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 harmful to the US and the rest of the world,” she added.

As an example, she cited Trump’s tariffs on more than $300 billion in US goods. Those measures did nothing to reduce the U.S.

“It’s important to think about actions and what they might generate as counter actions carefully, because once you let the genie out of the bottle, it’s hard to put it back in,” she said.

Although she believes that “some re-globalization is necessary,” political support for such efforts will materialize only if more is done to compensate workers who lose out of free-flowing trade, in her eyes.

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“If an entire industry moves overseas and there is no attention to the people whose jobs are gone, no effort to provide access to opportunities and new skills, then, of course, there will be popular dissent,” she said.

But if countries cut global trade links and turn to themselves instead, such actions would only boomerang and hurt those same workers by driving up prices, she said.

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

She spoke to the Post while attending a pair of Asian summits whose guests include President Biden and other world leaders. Along with the US president, she is scheduled to attend the upcoming Group of 20 leaders summit in Bali, Indonesia, which is expected to focus on combating the economic aftershocks of Russia’s invasion of Ukraine, developing debt relief plans for the poor countries and address the slowing global economy.

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