The IMF says US-China tensions could cost the world 2 percent of output.

WASHINGTON DC, USA – DECEMBER 26: The International Monetary Fund (IMF) building is seen in Washington DC, USA on December 26, 2022. (Photo by Celal Gunes/Anadolu Agency via Getty Images)

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The International Monetary Fund said on Wednesday. Report Global tensions could disrupt overseas investments and ultimately result in a long-term loss of 2 percent of global GDP.

Companies and policymakers around the world are looking for ways to make their production chains more resilient, “producing at home or in trusted countries,” the IMF said in its report, which leads to a split in foreign direct investment.

The IMF pointed to recent bills issued against a backdrop of rising tensions between the US and China, such as in Washington. Chips and science law. Japan soon Installed China joins U.S. efforts to curb its ability to make advanced chips with its own restrictions on 23 types of semiconductor manufacturing equipment.

A recent study by the American Chamber of Commerce in China Similarly, foreign direct investment away from China has shown a shift. Less than half of those asked made China a top three investment priority for the first time in 25 years.

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IMF economists say money is now flowing into countries with so-called “geopolitical proximity”. The rise of “friend-shoring” could hurt less developed markets, the firm said.

“In emerging market and developing economies, especially from advanced economies, access to investment has declined, resulting in reduced capital formation and productivity gains from the transfer of better technologies and knowledge,” IMF economists including Jae-bin Ahn wrote in the report.

This is due to the increasing tension between China and the United States. From A The latest meeting Between US House Speaker Kevin McCarthy of California and Taiwan President Tsai Ing-wen, Beijing issued veiled threats, vowing to take “decisive measures” in response to the “outrage”.

Taiwan President Tsai Ing-wen, left, and US House Speaker Kevin McCarthy, Republican of California, during an event at the Ronald Reagan Presidential Library in Simi Valley, California, US, Wednesday, April 5, 2023.

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IMF economists added that developing economies are more vulnerable to this shift in foreign direct investment because they are “more dependent on flows from geopolitically distant countries.”

Even if powerful countries reap the benefits they want in a period of heightened stress, those gains may be partially offset by outflows from weaker foreign demand, the IMF warns.

“A fragmented world is likely to be poorer,” IMF economists wrote.

prone to shock

The IMF argues that while “reconfigured” supply chains based on geopolitical ties can serve a country’s national security interests and gain dominance over competitors, there are also consequences.

In their note, IMF economists note that “friendship to existing partners often reduces diversification and makes countries more vulnerable to macroeconomic shocks.” A year ago, the organization argued for more diversification of supply in global trade, “Different global value chains will help reduce the impact of future shocks.

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The organization revisited that argument, saying that even in developed economies, overseas firms are increasing competition and “incentivizing domestic enterprises to become more efficient.”

He warned that policy uncertainty must be reduced, as it “increases the losses from fragmentation”.

“In a fragmented world with heightened geopolitical tensions, investors may worry that unaligned economies will be forced to choose one group or the other in the future, and such uncertainty could exacerbate losses,” the IMF wrote.

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