Her remarks came at a time of heightened geopolitical uncertainty over a number of issues, including the escalating conflict between the United States and China and the war in Ukraine.
Gopinath said that while economic fragmentation is not yet as severe as it was during the Cold War, the potential costs are much greater as the world becomes more reliant on trade.
Due to the decoupling of trade and overall relations between the two countries, China’s share of U.S. imports declined by 8 percentage points between 2017 and 2023, and the U.S. share of China’s exports decreased by approximately It fell by 4 percentage points.
Gopinath said trade between countries allied with China or the US was also adversely affected.
From mid-2022 to 2023, the average weighted quarterly trade growth rate between pro-U.S. and pro-China countries was nearly 5 percentage points lower than the five-year period from 2017 to early 2022.
A similar pattern could be observed after Russia’s invasion of Ukraine, with inter-bloc trade and investment falling more than intra-bloc trade.
Meanwhile, according to Gopinath, the currency composition of trade finance has also changed more in countries that lean toward China than those that lean toward the United States. While the dollar-denominated share of trade finance payments in China-leaning countries has declined since early 2022, the renminbi-denominated share has doubled from around 4-8%. There was little change in countries leaning toward the United States.
This trend will continue even if Russia is removed from the pro-China bloc, she said, indicating the trend is becoming more global.
High-level talks between Beijing and the West have increased in recent months, with senior government officials discussing national security concerns, allegations of anti-competitive behavior and longstanding disputes over China’s support for Russia after the invasion of Ukraine. They are trying to repair a relationship damaged by an argument. Numerous sanctions from Western countries followed.
Despite Beijing’s efforts to lure overseas investors back, many international companies remain cautious due to China’s economic slowdown and ongoing geopolitical conflicts.
So far, the erosion of direct economic ties between the U.S. and China has been mitigated through third-party “connector countries” such as Mexico and Vietnam, which have become conduits to redirect trade, Gopinath said. said.
However, he added that the costs of sector deterioration could vary widely, with losses ranging from around 0.2% of global GDP in a benign scenario to as much as 7% in an extreme scenario.
The IMF expects that the impact of such a recession will not be uniform, and that low-income countries will be hit hardest by trade fragmentation as they become more dependent on agricultural imports and investment from developed countries. There is.
“The dialogue between the United States and China that we are currently witnessing will help prevent the worst outcomes from occurring. Non-aligned countries will also use their economic and diplomatic influence to maintain global integration.” “They can play a bigger role,” she said.
Others are less hopeful about their predictions. A separate report released Tuesday by the Economist Information Bureau predicted that economic and diplomatic relations between China and the United States will deteriorate throughout the rest of the decade, regardless of the outcome of November’s U.S. presidential election.