If global supply
chains are forced to adjust to the ongoing trade tensions between the U.S. and
China, it could cost the world economy about 1 percent of its GDP by next year,
a senior IMF official warned.
When resources are
reallocated due to market forces, that is considered to be an improvement in
efficiency, said Tao Zhang, deputy managing director at the International
Monetary Fund. But when those changes happen due to unnatural distortions in
the global environment, the cost of adjustment is high, he told CNBC’s Nancy
Hungerford on Saturday, during the IMF and World Bank annual meetings in
It would cost the
entire world “close to 1 percent of GDP by 2019,” Zhang added.
“This gives you (an) illustration of how serious the result will be, but,
in reality, we will see probably even more complicated implications, not only
on trade, investment, but also on confidence and people’s psychological
recently cut global growth forecasts: It predicted that the world economy
would grow at 3.7 percent this year and next year — down 0.2 percentage points
from an earlier forecast. The fund also cut its predictions for global trade
volumes: The total goods and services flow is expected to grow by 4.2 percent
this year and 4 percent next year — down 0.6 and 0.5 percentage points,
respectively, from earlier estimates.
According to Zhang,
there are no beneficiaries in a trade war. Even if a country appears to have
come out on top, it would potentially do so at the expense of production
capacities and a reduction in final demand.
The U.S. and China are
currently embroiled in a trade spat, in which Washington and Beijing have
both applied tariffs on some of each other’s imports.
winner in this game, so we would urge the two countries, or any of the trading
partners, whenever they get into trade disagreements, let them talk to each
other and de-escalate this tension,” Zhang said.
That is, he said,
what the “international community needs” because the relationship
between the two largest economies is “quite important” to the world
The worst case
scenario, he said, would be a continued escalation of the trade spat where the
countries keep applying tariffs on each other’s imports.
Source : MSNBC