Escalating trade tensions and tariffs between the United States and China could have widespread and costly economic consequences, according to Gita Gopinath, Deputy Managing Director of the International Monetary Fund (IMF). Speaking to CNBC, Gopinath highlighted the significant economic risks of escalating tariffs, cautioning that such moves would impact not only the U.S. and China but would also strain economies worldwide.
“We are seeing geopolitically driven trade around the world,” Gopinath explained. “Trade between the U.S. and China is rerouting through other nations, but escalating tariffs would be a burden on everyone involved.” This trend is also mirrored in the mounting trade tensions between China and the European Union, with both the U.S. and EU recently imposing higher tariffs on Chinese goods over concerns of unfair practices from Beijing. In response, China has announced higher tariffs on certain imports from the EU.
According to IMF modeling, if trade tariffs continue to rise, global output could fall significantly, fueling inflation and slowing economic growth worldwide. “Output will be much lower than what we are currently projecting, with increased pressure on inflation. This is not the direction we want to head in,” Gopinath added.
IMF Managing Director Kristalina Georgieva previously noted that trade may no longer serve as the “engine of growth” it once was, especially as “retaliatory” tariffs threaten to impact both the countries imposing them and those on the receiving end. Gopinath echoed this concern, advocating for stable relations between the U.S. and China, which she said are in the best interest of the global economy.
On Wednesday, Tim Adams, CEO of the Institute of International Finance, also expressed concern over tariff policies proposed by U.S. presidential candidate Donald Trump, warning they could disrupt progress in curbing inflation and lead to rising interest rates.
The IMF’s recent World Economic Outlook report underscored the risks of protectionist policies, cautioning that increasing global trade tensions could disrupt supply chains and negatively impact medium-term growth prospects. Gopinath reinforced that a collective retreat from a rules-based trading system could undermine economic stability, noting, “It is in everyone’s self-interest to maintain productive relationships, especially between the world’s largest economies.”