IMF Deputy Managing Director Gita Gopinath said that growing tensions between the United States and China threaten global trade cooperation and economic growth. She warned that events such as the global pandemic and Russia's invasion of Ukraine have disrupted global trade relations in ways not seen since the Cold War, and now countries around the world are increasingly choosing sides between China and the United States.
"The trend towards fragmentation threatens to move away from the global rules-based trading system and significantly reduce the benefits of economic integration," Gopinath said, adding that amid growing tensions between the United States and China, more than 3,000 trade restrictions were imposed by countries in 2022 and 2023 (more than three times as many than in 2019), while trade between the China and U.S. blocs has declined compared with trade among countries within the groupings.
The IMF said that after the invasion of Ukraine, trade between the blocs fell by about 12%, and foreign direct investment decreased by 20% compared to volumes within the bloc's member countries.
Gopinath warned that given the high dependence of the global economy on trade, if disagreements are not resolved, the economic costs to global GDP could reach 7% in an extreme fragmentation scenario. GDP will be hit by about 0.2% in case of mild divisions. The IMF said that low-income countries are likely to suffer the most due to their greater dependence on agricultural imports and foreign investment from more developed economies.