IMF urges non-alignment during the Second Cold War — a global issue
  • opinion Written by Jomo Kwame Sundaram (accra, ghana)
  • interpress service

IMF warning

Ominously, the First Deputy Managing Director of the International Monetary Fund (IMF) Gita Gopinath “With the weakest global growth outlook in decades, and… pandemics and wars slowing income convergence between rich and poor countries, we can hardly afford another Cold War.”

Although she recognizes that globalization is over, she urges governments to “maintain economic cooperation despite the geo-economic divisions” caused by the Second Cold War.

Rising U.S.-China tensions, the pandemic and war have changed international relations. The US has called for “friendshoring,” while its European allies say they want to “avoid risk.” Although China still calls for “globalization,” in reality it emphasizes “independence.”

Multilateral rules have rarely been designed to deal with such international conflicts, where ostensible “national security” concerns rewrite the economic policies of great powers. Geoeconomic disputes therefore have few rules and no referees.

historical perspective

Soon after World War II, the United States and the Soviet Union led opposing blocs in a newly polarized world.rear bandung (1955) and belgrade (1961), the non-aligned countries rejected both sides. This era lasted for 40 years.

The ratio of world trade to GDP has increased due to the postwar recovery and subsequent trade liberalization. During the First Cold War, geopolitical considerations shaped trade and investment flows as economic relations between blocs diminished.

She says the value of such trade increased after the Cold War and “reached almost a quarter of world trade” during the “hyperglobalization” of the 1990s and 2000s.

However, globalization stalled after 2008. Approximately 3,000 trade restrictive measures were subsequently imposed in 2022. This is almost triple what he was charged in 2019.

cold war economics

Gopinath sees the “ideological and economic conflict between the two superpowers” as the cause of both cold wars. The United States’ current rival is China rather than the Soviet Union, but the situation is different in other ways as well.

In 1950, these two blocs accounted for 85% of world production. Today, the world’s north, China and Russia, account for 70% of global output but only one-third of the population.

As countries became “more integrated,” their economic interdependence increased. International trade to output is now 60%, compared to 24% during the Cold War. This inevitably raises the costs of what she calls economic “fragmentation” due to geopolitics.

Due to the Ukraine war, trade between the blocs decreased from 3% before the war to -1.9%. Even intra-bloc trade growth fell to 1.7% from 2.2% before the war. Similarly, FDI proposals “declined more than intra-bloc proposals…while FDI to non-aligned countries increased sharply.”

China is no longer the United States’ largest trading partner, as “China’s share of U.S. imports fell from 22% in 2018 to 13% in early 2023.” Trade restrictions since 2018 have reduced U.S. FDI into China, including imports of products subject to tariffs. It plummeted.

However, the direct relationship between the United States and China is being replaced by an indirect relationship. Foreign direct investment is also increasing, and “the countries that have gained the most from the United States’ import share are also gaining a larger share from China’s export share.”

a BIS research In particular, it found that “supply chains have lengthened over the past two years” between “Chinese suppliers and U.S. customers.” Hopefully, Gopinath suggests, “Despite efforts by the two largest economies to sever ties, it is not yet clear how effective they will be.”

For Gopinath, trade restrictions “reduce efficiency gains from specialization, limit economies of scale due to small markets, and reduce competitive pressures.”

She noted that IMF research suggests that “the economic costs of fragmentation…could have a significant impact and disproportionately weigh on developing countries,” and that the losses would be a disproportionate share of global output. It is reported that the proportion is approximately 2.5%.

Depending on the resilience of the economy, losses could reach 7% of GDP, “particularly in low-income and emerging market countries,” he said.

A lot depends on how things unfold. She warns that “fragmentation will also undermine our efforts to address other global challenges that require international cooperation.”

Policy options

Policymakers face difficult trade-offs between minimizing the costs of fragmentation and vulnerability and maximizing security and resilience.

Gopinath recognizes that given the current geopolitical hostility situation and likely future trends, her “first best solution” of avoiding geoeconomic hostilities is remote at best. There is. Rather, she appeals to avoid the “worst-case scenario” and protect “economic cooperation” despite polarization.

She wants adversaries to “target only a limited number of products and technologies that justify intervention on economic security grounds.” Otherwise, she advocates a “non-discriminatory multilateral approach” to “deepen integration, diversify and reduce resilience risks”.

Despite the challenges, Gopinath appealed for a “multilateral approach to areas of common interest” to “adhere to the global goal of avoiding climate devastation, food insecurity and pandemic-related humanitarian disasters.” There is.

Finally, she wants to limit “unilateral policy actions such as industrial policy.” She should only work on “addressing market failures while preserving market forces,” and she always insists on “allocating resources most efficiently.”

Disapproving that there are double standards involved, she wants policymakers to “carefully evaluate industrial policy in terms of its effectiveness.” But she is not so cautious and uncritical in asserting her neoliberal conventional wisdom, despite her dubious track record.

Understandably, two IMF staff members felt compelled to write “” in 2019.Return of the do not name policy‘. Despite long-standing widespread use in Europe and Japan, and recent adoption of industrial policies by US President Biden, the fund appears to have fallen into an ideological trap and time distortion of its own making.

While Gopinath makes over-the-top claims about the benefits of globalization, he acknowledges that “economic integration has not benefited everyone.”

Thankfully, as the new Cold War pushes the world further backwards, she urges developing countries to remain non-aligned and “exert their economic and diplomatic influence to maintain global integrity.” ing.

Realistically, Gopinath said, “some economies could benefit from trade and investment diversion if they remain non-aligned and continue to engage with all partners.”

By 2022, “more than half of world trade will involve non-aligned countries…and non-aligned countries will be able to directly benefit from trade and investment diversion,” reducing the high costs of the Cold War.

IPS United Nations Secretariat

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© Inter Press Service (2024) — All rights reservedSource: Interpress Service

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