IMF director warns of global trade risks and protectionism costs

The International Monetary Fund’s Managing Director, Kristalina Georgieva, during her visit to Paris from November 9 to November 11, underscored the urgent need to revamp globalization to prevent increasing protectionism and its potential to spur global poverty and insecurity. In a narrative that recognizes the double-edged sword of globalization, Georgieva acknowledged its substantial benefits to the global economy, particularly for developing nations, while also highlighting the downsides, such as job losses and the rise of anti-globalization sentiments.

Georgieva pointed out the pandemic’s role in disrupting supply chains, which has pushed companies toward localizing production. However, she warned that this could centralize risks in case of future crises. She advocated for a collaborative approach to redefine globalization that avoids prioritizing national interests over collective economic security and integration.

The IMF director emphasized the dangers of escalating protectionism, which she said could lead to fragmentation in world trade. She cited a concerning increase in trade barriers, from around 500 in 2017 to 3000 in 2022, urging countries to resist this trend. According to Georgieva’s estimates, the cost of global trade fragmentation could range between 0.2% and 7% of global GDP. In a stark illustration of this threat, she compared the most severe scenario to excluding major economies like Germany and Japan from international commerce.

Highlighting the interconnectedness of global economies, Georgieva cautioned that if a major economy such as the US, Europe, or China were to adopt protectionist policies, there is a high likelihood—73%—that partner countries would reciprocate with similar measures within a year. This tit-for-tat approach could exacerbate the risks of worldwide impoverishment and instability. Georgieva’s comments during her interview with Le Monde reflect a growing concern among international leaders about the potential perils facing the global economy due to increased geopolitical tensions and the temptation towards economic insularity.

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