International Monetary Fund Deputy Managing Director Gita Gopinath told CNBC on Wednesday that escalating trade and tariff tensions between the United States and China will have “costly” economic consequences around the world.
“We see trade around the world being driven by geopolitics, which is why when you look at overall trade as a share of GDP, things have been good, but who is trading with whom is definitely changing,” she said. .
She added that trade between the United States and China has decreased and some trade is being rerouted to other countries.
This year has seen rising trade tensions between the United States and China and the European Union and China, with both the United States and the European Union imposing higher tariffs on some Chinese goods, citing unfair trade practices by Beijing.
China also announced higher temporary tariffs Sanctions have been imposed on some imports from the EU as tit-for-tat measures continue.
Gopinath told CNBC’s Karen Tso on the sidelines of the International Monetary Fund’s annual meeting in Washington that if tariffs escalate, IMF modeling shows it “will be very costly for everyone.” price”.
“Output in countries around the world will be much lower than we expect and inflation will come under pressure, so that’s not the direction we should be heading in,” she explained.
Gopinath’s comments come after International Monetary Fund Managing Director Kristalina Georgieva said last week that international trade would no longer be the “engine of growth” it once was and would be “vindictive” Trade measures can harm the countries implementing them and their objectives.
Tim Adams, chief executive of the Institute of International Finance, also warned on Wednesday that U.S. presidential candidate Donald Trump’s tariff proposals would disrupt the path to deflation and could lead to higher interest rates.
The IMF’s Gopinath said a “good working relationship” would benefit both the United States and China, noting that it was also important for the rest of the world.
“It’s in everyone’s self-interest to maintain these relationships,” she said.
The International Monetary Fund issued a warning in its latest World Economic Outlook Report Increasingly protectionist policies pose downside risks to economic growth.
“The widespread withdrawal from the rules-based global trading system is prompting many countries to take unilateral actions. The intensification of protectionist policies will not only exacerbate global trade tensions and disrupt global supply chains, but may also be a drag on medium-term growth prospects,” the report said.
—CNBC’s Jenni Reid contributed to this article
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