China-West divide threatens ‘reversal’ for global economy, IMF official warns

Name: An unwinnable conflict? The US-China trade war, 5 years on
Uploaded: 2024-05-08T00:00:26.000Z
Duration: 14 min 45 s
Description: An unwinnable conflict? The US-China trade war, 5 years on

First deputy managing director of IMF says creation of trade blocs based on geopolitical relationships with China, US has been detrimental to global growth

Recommends dialogue and an avoidance of worst-case scenarios, which would harm low-income countries most

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Gita Gopinath, first deputy managing director of the IMF, has issued a warning about the economic consequences of continued geopolitical division. Photo: Bloomberg

Sophie Chew

Published: 8:00am, 8 May 2024Updated: 9:29am, 8 May 2024

A top official with the International Monetary Fund (IMF) has lamented the economic fallout from years of strained relations between China and the West, and warned the situation for the world economy would only grow more dire if the acrimony continues unabated.

With the world now divided among three broad blocs of countries – China-leaning, US-leaning, and nonaligned – both a “significant reversal of the gains from economic integration” and “a broad retreat from global rules of engagement” are on the horizon, said Gita Gopinath, the first deputy managing director of the financial agency.

Gopinath, who has often led annual audits of China’s financial system, made the remarks in a speech at Stanford University on Tuesday.

Her remarks come at a time of increased geopolitical uncertainty over a number of challenges, most notably an escalating rivalry between the US and China and the war in Ukraine.

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An unwinnable conflict? The US-China trade war, 5 years on

Although economic fragmentation is not yet as severe as it was during the Cold War, Gopinath said, it carries a much greater potential cost thanks to higher global reliance on trade.

China’s share of US imports fell by 8 percentage points between 2017 and 2023 as trade and overall relations between the two countries fragmented, while the US’ share of China’s exports fell by about 4 percentage points during the same period.

Trade between blocs of countries aligned with either China or the US was also negatively affected, Gopinath said.

Between the middle of 2022 and 2023, the average weighted quarter-on-quarter trade growth between US-leaning countries and China-leaning countries fell by nearly five percentage points compared with the five-year period between 2017 and early 2022.