IMF Warns That Asia Would Be The Biggest Loser In A Global Economic Split

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The International Monetary Fund cautioned that Asia-Pacific has more to lose than any other region if the global trade system fragments as a result of geopolitical tensions.

According to IMF research published on Friday, Asia and Pacific countries could experience a loss of over 3% in gross domestic product if trade is cut off in sectors affected by recent U.S. chip sanctions on China and if non-tariff barriers in other areas are raised to “Cold War-era levels

The International Monetary Fund cautioned that Asia-Pacific has more to lose than any other region if the global trade system fragments as a result of geopolitical tensions.

According to IMF research published on Friday, Asia and Pacific countries could experience a loss of over 3% in gross domestic product if trade is cut off in sectors affected by recent U.S. chip sanctions on China and if non-tariff barriers in other areas are raised to “Cold War-era levels.”

That is equivalent to twice the estimated annual global losses.

The IMF added that industries in Asian nations forced to cut back on trade could experience employment losses as high as 7% on average.

Asia risks losing a lot because it is an important participant in global supply chains and because it risks losing more than anyone else in a fragmented world.

PC: CNBC

U.S.-China trade tensions


During the U.S.-China trade war in 2018, there were indications of global fragmentation. But more concerning indications, like the war between Russia and Ukraine, have since surfaced. According to the IMF, sanctions against Russia have increased the level of uncertainty in trade relations.

The IMF warned that trade policy uncertainty, not just trade restrictions, could slow economic growth as businesses delay hiring and investments and new businesses delay market entry.

For instance, the IMF discovered that after two years, the 2018 U.S.-China trade tensions decreased investments by about 3.5%.

The effects of trade fragmentation are more severe for Asian emerging markets and for businesses with high levels of debt.

While the IMF’s research concentrated on the effects of trade fragmentation, it warned that there could be other, more serious negative effects as well, like the “unravelling of financial ties.”

The IMF stated that financial fragmentation could result in both short-term costs from a quick unwinding of financial positions as well as long-term costs from a lack of diversification and a slower rate of productivity growth due to a decline in foreign direct investment.

The international organisation calls on nations to remove harmful trade restrictions and lessen uncertainty by communicating their policy objectives more clearly.

“Investing in education and digitalization can be given more priority… but foremost, global cooperation, as we want to reduce the chance of fragmentation… We must all act quickly and collectively, Srinivasan stressed.

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