July 30, 2021

US and China take their commercial fight, with no solution in sight, to the IMF

US and China take their commercial fight, with no solution in sight, to the IMF

The United States and China took their trade dispute to the annual meeting of the International Monetary Fund (IMF) and the World Bank (WB), in the face of general concern and the growing shadows cast on the global economy.

"The recovery is increasingly unbalanced and some of the previously identified risks have materialized partially," said Lesetja Kganyago, president of the IMF's Monetary and Financial Committee, at the closing press conference of the assembly that took place at the island of Bali, in Indonesia.

Kganyago, the governor of the Reserve Bank of South Africa, highlighted "the acute trade tensions" as well as "the tighter financial conditions that are affecting many emerging countries."

At his side, the managing director of the IMF, Christine Lagarde, insisted on the need to "reduce" the tensions, unleashed between the US and China, and called to "reform, not destroy" the international trading system.

"We must navigate fair, and not lose our way, collaborating together will make us better," said Lagarde.

On Tuesday, the Fund put figures to these concerns in its new macroeconomic projections, which reduced by two tenths the estimates of expansion of the global economy to 3.7% in 2018 and 2019 as a result of the commercial fight between the two largest world economies.

More direct was the host, Joko "Jokowi" Widodo, the Indonesian president, who warned about the clouds that accumulate on the horizon.

"The balance of power and alliances between developed countries seems to be breaking down, the lack of cooperation and coordination has caused many problems, such as the sudden rise in the price of oil and the chaos in the currency markets experienced by emerging countries," he warned. in his speech before the representatives of the 189 countries that are part of the IMF and the WB.

Other than that, US Treasury Secretary Steven Mnuchin insisted that his country's robust growth, which is expected to end the year at a rate of 2.9%, is "positive" for the global economy and rejected that Washington defends protectionist proposals.

"We defend fair, free and reciprocal growth," he said in a meeting with a small group of journalists.

Mnuchin had a meeting with the governor of the Central Bank of China, Yi Gang, which he described as "productive" to try to calm things down.

However, he stressed that the goal of the US president, Donald Trump, is to continue his efforts against restrictive business practices and to include in the talks the manipulation of currencies, something that Washington has accused Beijing.

"We want to make sure that depreciation is not being used for competitive purposes in commerce," Mnuchin said.

To this Yi replied, in his speech to the plenary of the Fund, with an explicit commitment not to intervene in the foreign exchange market.

The president of the Chinese central bank did not miss the opportunity to present himself as a victim of Washington's aggressive trade policy and added to the general concern that the trade dispute is one of "the main risks" for the global economy.

Mnuchin and Yi discussed the possibility of a formal meeting between Trump and Chinese President Xi Jiping at the G20 summit that will take place at the end of November in Buenos Aires, where, according to some analysts, the hatchet could be buried.

"I do not think that a decision has been made about the meeting, as to whether we can move towards it, I would encourage it," the Treasury secretary explained.

The fight between Washington and Beijing has relegated to the background another of the concerns – advanced by the Indonesian president – of the great forum of global economic leaders in the multiple debates that have taken place on the paradisiacal island of Bali: the growing pressures financial risks for emerging markets and the risk of contagion.

The rise of interest rates of the Federal Reserve (Fed) in the US is putting pressure on the finances of the most indebted emerging markets, as is the case of Argentina, which has had to request a rescue program from the Fund, and Turkey, which have I saw how their local currencies plummeted.


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