US-China rivalry risks blowing up global economy, IMF chief warns
“My concern is a growing fragmentation of the global economy,” Georgieva said in an interview with The Washington Post. “We may be sleepwalking into a world that is poorer and less secure as a result.”
A world economy carved into opposing camps would contract by 1.5%, or more than $1.4 trillion in annual terms, according to the IMF. In Asia, the center of global value chains for electronics, clothing and industrial goods, the percentage losses would be twice as large, she said.
“I lived through the first Cold War on the other side of the Iron Curtain. And, yes, it is quite cold there,” said Georgieva, who was born and raised in Bulgaria. “And participating in a second Cold War for another generation is…very irresponsible.”
Annual trade between the United States and China is still significant, exceeding $600 billion. And the American and Chinese economies are so intertwined that Georgieva considers a complete breakup impossible.
But since former President Donald Trump began imposing tariffs on imports from China in 2018, talk of America’s “decoupling” from the world’s second-largest economy has resumed. The United States and China have taken steps to become more self-sufficient.
Under Chinese President Xi Jinping, for example, the Beijing government subsidized the development of domestic high-tech industries with mixed results. President Biden focused on reducing the United States’ reliance on foreign suppliers for a range of products, including medical supplies, computer chips and rare earth materialswhich are used to manufacture smartphones, electric vehicles and fighter jets.
Treasury Secretary Janet L. Yellen is also making that push. This week, she traveled to India, promoting what she calls “friend shoring,” or relying on U.S. allies for critical materials rather than potential adversaries like China. .
The underlying challenge since 2020 is that the pandemic, extreme weather events and the war in Ukraine have interrupted dozens of assembly lines. Shortages of personal protective equipment, semiconductors and natural gas have convinced US and European officials that they must pay more for redundant supply links.
This diversification of supply chains after the pandemic made sense up to a point, Georgieva said. But when it goes “beyond economic logic, it would be detrimental to the United States and the rest of the world,” she added.
As an example, she cited Trump’s tariffs on more than $300 billion of US imports from China, which the Biden administration has maintained. These measures have done nothing to reduce the US trade deficit with China, which Trump has promised to eliminate, and have left US consumers paying higher prices for Chinese goods.
“It is important to think carefully about actions and what they can generate as counter-actions, because once you let the genie out of the bottle, it is difficult to put it back,” he said. she stated.
While she thinks “some re-globalization is needed”, political support for such efforts will only materialize if more is done to compensate workers who lose in the fluidity of trade, in her view.
“If an entire industry moves overseas and there is no attention to people whose jobs have disappeared, no effort to provide access to opportunities and new skills, then, of course, there will be popular dissent,” she said.
Yet if countries severed global trade ties and turned inward, such actions would only boomerang and hurt those same workers by driving up prices, she said.
Georgieva, 69, has held the fund’s highest post since 2019. A former professor of economics, she has also held senior positions at the World Bank and the European Commission.
She spoke to The Post as she attended two Asian summits whose guests include President Biden and other world leaders. Along with the US president, she is due to attend the upcoming Group of 20 leaders summit in Bali, Indonesia, which is expected to focus on tackling the economic fallout from Russia’s invasion of Ukraine, developing plans debt relief for the poorest countries and the resolution of the global economic downturn.