An escalation in trade and tariff tensions between the United States and China would have “costly” economic consequences around the world, Gita Gopinath, deputy managing director of the International Monetary Fund, told CNBC on Wednesday.
“We’re seeing geopolitical trade around the world, so when you look at the overall trade to GDP ratio it’s holding up well, but who trades with who is certainly changing,” she said. declared.
The United States and China are trading less with each other and some parts of their trade are being rerouted through other countries, she added.
Trade tensions between the United States and China and the European Union and China have intensified this year, with the United States and the EU imposing higher tariffs on some Chinese products due to what they consider unfair trade practices on the part of Beijing.
China also announced higher temporary rates on certain imports from the EU while retaliatory measures continue.
If tariffs were raised, IMF models suggest it would be “costly for everyone,” Gopinath told CNBC’s Karen Tso on the sidelines of the agency’s annual meeting in Washington.
“Output is going to be much lower than we expect for all the countries in the world, there are going to be pressures on inflation, so that’s not the direction we should be going,” she said. explain.
Gopinath’s comments come after IMF Managing Director Kristalina Georgieva said last week that international trade would no longer be the “engine of growth” that it once was, and that “retaliatory” trade measures could harm those who impose them as well as their objectives.
Tim Adams, CEO of the Institute of International Finance, also warned on Wednesday that US presidential candidate Donald Trump’s tariff proposals interrupt the path to disinflation and could lead to higher interest rates.
The IMF’s Gopinath said it would benefit both the United States and China to have “good working relations,” emphasizing that it was also important for the rest of the world.
It is “in everyone’s interest that these relationships be maintained,” she said.
The IMF warned in its recent World Economic Outlook report that the intensification of protectionist policies constituted a downward risk for growth.
“A widespread retreat from a rules-based global trading system is prompting many countries to take unilateral action. Not only would an intensification of protectionist policies exacerbate global trade tensions and disrupt global supply chains, it could also weigh on the medium-term outlook. growth prospects,” the report said.
—Jenni Reid of CNBC contributed to this story