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



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PHNOM PENH, Cambodia — The global economy is splitting into rival blocs, threatening a Cold War rerun that would leave almost everyone worse off, the head of the International Monetary Fund said on Saturday.

U.S. and European efforts to redraw global supply chains make sense if they help eliminate the kind of reliance on a single supplier that proved so disruptive during the pandemic, according to Kristalina Georgieva, the fund’s managing director. But if the two powers erect new trade barriers to gain an edge in their geopolitical contest, they could set off a destructive cycle that would hurt middle-class and poor households while leaving the wealthy unscathed.

“My concern is a deepening fragmentation in the world 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.”

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A world economy carved into opposing camps would shrink by 1.5 percent, or more than $1.4 trillion in annual terms, according to the IMF. In Asia, the center of global value chains for electronics, apparel and industrial goods, losses in percentage terms would be twice as great, she said.

“I lived through the first Cold War on the other side of the Iron Curtain. And, yeah, it is quite cold out there,” said Georgieva, who was born and raised in Bulgaria. “And to go in a second cold war for another generation is … very irresponsible.”

Annual trade between the U.S. and China is still sizable, topping $600 billion. And the U.S. and Chinese economies are so intertwined that Georgieva sees a complete rupture as impossible.

But since former president Donald Trump began imposing tariffs on imports from China in 2018, talk of the U.S. “decoupling” from the world’s second-largest economy has picked up. Both the United States and China have taken steps to become more self-reliant.

Under Chinese President Xi Jinping, for example, the government in Beijing has subsidized development of domestic high-tech industries with mixed results. President Biden has emphasized reducing U.S. dependence upon foreign suppliers for an array of products, including medical supplies, computer chips and rare earth materials, which are used to make smartphones, electric vehicles and fighter jets.

Treasury Secretary Janet L. Yellen is also making this push. This week she traveled to India, promoting what she calls “friend-shoring,” or relying upon 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 U.S. and European officials that they need to pay more for redundant supply links.

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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 harmful for the U.S. and the rest of the world,” she added.

As an example, she cited Trump’s tariffs on more than $300 billion in U.S. imports from China, which the Biden administration has maintained. Those measures did nothing to reduce the U.S. trade deficit with China, which Trump promised to eliminate, and left American consumers paying higher prices for Chinese products.

“It is important to think through actions and what they may generate as counter actions carefully, because once you let the genie out of the bottle, it’s hard to put it back in,” she said.

While she believes “some re-globalization is necessary,” political support for such efforts will materialize only if more is done to compensate workers who lose out from free-flowing trade, in her eyes.

“If a whole industry moves overseas and there is no attention to the people whose jobs are gone, no effort to provide access to opportunities and new skills, then, of course, there will be popular dissent,” she said.

Yet if countries sever global trade links and turn inward instead, such actions would only boomerang and hurt those same workers by driving up prices, she said.

Georgieva, 69, has held the fund’s top job since 2019. A former economics professor, she also held senior posts at the World Bank and the European Commission.

She spoke to The Post while attending a pair of Asian summits whose guests include President Biden and other world leaders. Along with the U.S. president, she is scheduled to attend the upcoming Group of 20 leaders summit in Bali, Indonesia, which is expected to focus on tackling the economic aftershocks from Russia’s invasion of Ukraine, developing debt-relief plans for poorer countries and addressing the slowing global economy.



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