Business Standard

Us-china tussle fragmentin­g trade, IMF finds


The global economy is showing signs of dividing between US- and China-centered blocs, though the dynamics differ from the Cold War with less overall fragmentat­ion and a greater role for non-aligned economies, an Internatio­nal Monetary Fund study found.

Trade flows between a Usaligned group and another linked more closely to China have declined by about 12 per cent more than trade between countries within the same bloc since Russia’s full-scale invasion of Ukraine, according to a new working paper by IMF economists including First Deputy Managing Director Gita Gopinath.

Foreign direct investment projects fell by around 20 per cent more between blocs than within blocs over the same period, it added. “The magnitude of the decline is both economical­ly and statistica­lly significan­t,” the paper said.

Still, those declines are a fraction of the shortfall during the Cold War, when trade between the rival Western and Eastern blocs declined by twothirds, relative to trade within those blocs, the study found. “While the extent of fragmentat­ion is still relatively small and we do not know how longlastin­g it will be, the decoupling between the rival geopolitic­al blocs during the Cold War suggests it could worsen considerab­ly should geopolitic­al tensions persist and trade restrictiv­e policies intensify,” according to the paper.

‘Connector’ Economies

Another contrast is that many of those non-aligned economies are benefiting from a new status as “connector” economies between the two blocs, it added.

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