/ world today news/ Experts from the International Monetary Fund believe that the confrontation between the USA and China will divide the world into two blocs. Disrupted supply chains and the end of free trade will lead to a global decline in production. Many countries are waiting for a banking crisis, inflation will increase. However, some will be able to take advantage of the unrest.
Unfree trade
According to the IMF report, the fight between Washington and Beijing will tear the world apart and disrupt trade relations. Then general poverty will follow.
Economists explain: if earlier components and goods could be produced at the lowest cost, now you will have to choose the appropriate option from “friendly” jurisdictions. Expenses will increase, and hence the cost of production. In addition, some markets will close, while others will face barriers in the form of duties and quotas.
For example, in China, almost every company was comfortable because of cheap labor. The inflow of foreign capital ensured high labor productivity, development of technology and the economy. But eventually the cost of production increases. “Western corporations will have to seek better terms over time. Other Asian countries would do so, but the emerging alliances may limit the US and Europe’s access to cheap labor,” explains Alexander Razuvaev, a member of the Guild’s Supervisory Board of financial analysts and risk managers.
In addition, China, one of the largest holders of US bonds, has begun to divest itself of them. Investments fell below $1 trillion in March, the lowest level in 12 years. If this continues, it will create stress in the United States debt market. According to Razuvaev, it is still not clear what will happen to the American stock exchange. “The market doesn’t always go up, stocks can go down and stay low for a long time,” he notes.
In addition, a large number of companies trade with both countries simultaneously. Severing business relationships will lead to job loss and poverty.
Financial losses
It will not pass without losses in the financial sectors of the USA and Europe – payments for transactions with China go through them. “If the situation worsens, their liquidity and solvency will decrease, a series of bankruptcies will occur,” economist Leonid Khazanov is convinced. Banks will raise interest rates, reducing the amount of money in the US and EU economies. The profitability of industry and agriculture will decrease, while product prices will rise, leading to inflation.
“The effect will increase if the OPEC countries take a firm position, as during the Arab-Israeli conflict in 1973,” recalls Razuvaev.
Experts believe that the IMF is seriously concerned about the risk of a global economic crisis that began with the pandemic. Then commodity prices and the purchasing power of the world population collapsed. “The recovery of the global economy after the coronavirus in 2021 led to an energy crisis in the European Union and China. Last year, a sanctions crisis followed. Now the banking crisis is gaining momentum in the US and the EU. This could cause a recession in the global economy,” says Khazanov. The confrontation between China and the US will only increase the destructive impact of the economic turmoil.
Analysts forecast a decline in world production of 1 percent over the next five years and 2 percent in the long term. “Of course, this is an average estimate. The IMF tends to add points to the West and underestimate the others. I think the indicator for the former will reach five percent, but the countries that remain really neutral and remain open to dialogue will be able to win “, Razuvaev believes. The IMF report aims above all to convince the Americans to reduce the degree of tension in relations with Beijing.
New centers
However, almost no one believes that Washington will put the interests of the economy and its own citizens above political ambitions. The economic stability of the country is based on energy, industrial and food security. But no Western Bloc country can rely solely on domestic resources in this matter. Therefore, the EU and the US actively cooperated, including with China and India.
Recently, the national currencies there have strongly strengthened and are pushing the dollar out of the markets. France has agreed to pay for Chinese gas in yuan, and Beijing has similar agreements with Brazil and Moscow. India switched to rupee payments with Iran and Malaysia. The upcoming BRICS summit may open up additional development prospects for the participants.
“The world is changing quite painfully, but it is clear that Russia will not be an outsider in it,” emphasizes Razuvaev.
According to him, if the country takes advantage of the moment, it will be able to strengthen its position in Eurasia, primarily through the former Soviet republics, to integrate with Belarus and Kazakhstan.
Translation: V. Sergeev
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