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

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PHNOM PENH, Cambodia – The global economy is fragmenting into conflicting factions, threatening a resurgence of the Cold War that could leave almost everyone worse off, the head of the International Monetary Fund said Saturday.

Efforts by the US and Europe to reorganize global supply chains make sense if they help end the reliance on a single supplier that has played a major role in the pandemic, according to Kristalina Georgieva, the fund’s manager. But if the two administrations erect new trade barriers to win their political battles, they could start a destructive process that will hurt middle-class and poor families and leave the rich untouched.

“My concern is the great distribution of wealth around the world,” Georgieva said in an interview with The Washington Post. “We may be walking in a poorer and safer country because of this.”

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The world economy held in the conflicting camps will decrease by 1.5 percent, or more than $ 1.4 trillion per year, according to the IMF. In Asia, the center of global value chains for electronics, clothing and industrial goods, the percentage loss could be twice as large, he said.

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

Annual trade between the US and China is still huge, exceeding $600 billion. And the US and Chinese economies are so intertwined that Georgieva sees a complete implosion as unlikely.

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

Under the leadership of Chinese President Xi Jinping, for example, the government in Beijing has supported the development of high-tech industries with mixed results. President Biden has emphasized reducing U.S. dependence on foreign suppliers for a number of things, including medical equipment, computer chips and world-class materials used to make cell phones, electric cars and military aircraft.

Treasury Secretary Janet L. Yellen is also pushing this. This week he traveled to India, to promote what he calls “friendship,” or relying on US allies for necessary equipment rather than adversaries like China.

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The main problem since 2020 is that the pandemic, weather events and the war in Ukraine have disrupted many lines. Shortages of defense equipment, semiconductors and natural gas have convinced U.S. and European officials that they have to pay more to acquire unneeded links.

Economic relations with China take a backseat to national security

The diversity of the post-pandemic supply chain has been felt so far, Georgieva said. But if it goes “beyond economic logic, it could be harmful to the US and the rest of the world,” he added.

For example, he mentioned Trump’s tariffs on more than $300 billion that the US has from China, which the Biden administration has maintained. The measures have done nothing to reduce the US trade deficit with China, which Trump has promised to eliminate, leaving American consumers paying higher prices for Chinese goods.

“It’s important to think about what to do and what to do as a countermeasure carefully, because once you let the genie out of the bottle, it’s hard to get it back,” he said.

Although he believes that “global reform is necessary,” in his eyes, political support for such efforts will only happen if more is done to compensate workers who have lost out because of free trade, in his eyes.

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“If all the companies are going overseas and there is no interest in the people whose jobs have ended, there is no effort to provide opportunities for new opportunities and skills, then, there will be a lot of inequality,” he said.

However, if countries abandon international trade links and turn inward, this will only exacerbate and harm the same workers by raising prices, he 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.

He spoke to The Post while attending an Asian conference whose guests include President Biden and other world leaders. Along with the US president, he is expected to attend the upcoming meeting of the Group of 20 leaders in Bali, Indonesia, which is expected to focus on dealing with the economic crisis caused by Russia’s invasion of Ukraine, developing plans to help poor countries and deal with the crisis. financial affairs. reducing the country’s economy.

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