Escalating trade tensions and tariffs between the United States and China could lead to significant and expensive economic repercussions, warns Gita Gopinath, Deputy Managing Director of the International Monetary Fund (IMF). In an interview with CNBC, Gopinath emphasized the substantial economic hazards associated with rising tariffs, indicating that their effects would be felt not just in the U.S. and China, but would also put pressure on economies around the globe.
“We are seeing geopolitically driven trade around the world,” Gopinath noted. “Trade between the U.S. and China is being redirected through other countries, but increasing tariffs would impose a burden on everyone involved.” This shift is reflected in the escalating trade friction between China and the European Union, where both the U.S. and the EU have recently raised tariffs on Chinese imports due to concerns over unfair practices from China. In retaliation, China has imposed increased tariffs on certain imports from the EU.
IMF projections indicate that if tariff levels continue to rise, global output could see a substantial decline, potentially intensifying inflationary pressures and hampering economic growth worldwide. “Output will be significantly lower than our current projections, leading to heightened inflationary pressure. This is not the trajectory we want to pursue,” Gopinath remarked.
IMF Managing Director Kristalina Georgieva has previously observed that trade might no longer function as the “engine of growth” it once did, particularly as “retaliatory” tariffs threaten countries both imposing and receiving them. Gopinath shared this concern, advocating for stable U.S.-China relations, highlighting that it serves the interests of the global economy.
Additionally, on Wednesday, Tim Adams, CEO of the Institute of International Finance, expressed apprehension regarding tariff policies put forth by U.S. presidential candidate Donald Trump, suggesting that such measures could hinder efforts to rein in inflation and result in increasing interest rates.
The IMF’s latest World Economic Outlook report emphasized the dangers of protectionist strategies, warning that rising global trade tensions could disrupt supply chains and adversely affect medium-term growth outlooks. Gopinath reiterated that a collective retreat from a rules-based trading system could jeopardize economic stability, underscoring that “It is in everyone’s self-interest to maintain productive relationships, particularly between the world’s largest economies.”
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