Gita Gopinath, Deputy Managing Director of the International Monetary Fund (IMF), has cautioned that intensifying trade disputes and tariffs between the United States and China could result in considerable and costly economic fallout. In a CNBC interview, Gopinath highlighted the serious economic risks tied to heightened tariffs, noting that their impact would extend beyond the U.S. and China and exert pressure on economies worldwide.
“We are witnessing geopolitically influenced trade patterns globally,” Gopinath remarked. “Trade flows between the U.S. and China are being rerouted through third countries, but rising tariffs would burden all parties involved.” This trend is evident in the increasing trade friction between China and the European Union, where both the U.S. and the EU have recently heightened tariffs on Chinese goods in response to allegations of unfair practices from China. In retaliation, China has raised tariffs on select imports from the EU.
Projections from the IMF suggest that if tariff rates keep increasing, there could be a notable decline in global output, potentially exacerbating inflationary pressures and stifling economic growth on a global scale. “Output will fall notably below our current estimates, leading to increased inflation pressures. This is not the path we wish to take,” Gopinath stated.
Kristalina Georgieva, the IMF Managing Director, has previously indicated that trade may no longer act as the “engine of growth” it once represented, particularly as “retaliatory” tariffs affect both the countries imposing them and those facing them. Gopinath echoed this sentiment, calling for stable U.S.-China relations, as she underscored their importance to the global economy’s welfare.
On Wednesday, Tim Adams, CEO of the Institute of International Finance, also expressed concerns regarding the tariff policies proposed by U.S. presidential candidate Donald Trump, warning that these measures could hinder efforts to curb inflation and lead to rising interest rates.
The IMF’s recent World Economic Outlook report cautioned against protectionist measures, alerting that escalating global trade tensions could disrupt supply chains and negatively impact medium-term growth forecasts. Gopinath reiterated that a united withdrawal from a rules-based trading framework could threaten economic stability, stressing that “It is in everyone’s best interest to sustain constructive relationships, especially between the world’s largest economies.”
Image Source: Animation Mama / Shutterstock
