Ms. Gopinath said, “The US wants 'friendshoring,' the EU wants 'risk aversion,' and China wants 'self-reliance.' National security concerns are shaping economic policy around the world. ”
She suggested that “industrial policies” such as President Joe Biden's anti-inflation law in the United States could lead to more tat-for-tat policies that would increase global tensions.
President Biden's flagship package provides nearly $400 billion in subsidies and tax credits for green projects and initiatives.
Mr Gopinath did not mention the subsidy scheme by name, but said industrial policy “should be carefully evaluated”.[d] …both in terms of effectiveness in achieving stated outcomes and the associated economic costs, including cross-border spillover effects.
He added: “Domestically, it may be difficult to limit or curtail industrial policy given concentrated benefits and dispersed costs. Internationally, such policies may lead to retaliation. This is likely to deepen divisions.”
The IMF estimates that if China introduces subsidies, there is a 90% chance that the EU will impose retaliatory trade restrictions within 12 months.
He also suggested that the current system of resolving trade disputes through the World Trade Organization is no longer fit for purpose.
“The global rules-based system was not built to resolve trade disputes based on national security,” she said. “Therefore, there are countries that do not have effective referees and compete strategically with amorphous rules.”
Gopinath warned that the risks are higher than ever against the backdrop of the global economic downturn.
“Countries are now more economically interdependent, through economic integration into global markets and complex global value chains,” he said.
“World trade as a percentage of GDP is now 60% of GDP, compared to 24% during the Cold War. This could increase the costs of fragmentation. In short, everyone could lose. There is.”
