The Power of China’s Economic Growth: A Rising Tide or a Sinking Ship?

According to the Financial Post, the IMF predicts China’s growth rate to reach 4.5% in 2025, despite several measures taken to boost the country’s economy, such as increased net exports and additional funds.

China’s challenges extend beyond its borders, as its ongoing trade war with the United States has resulted in new tariffs imposed by both nations, creating economic repercussions worldwide. IMF Deputy Director Gita Gopinath has drawn attention to the US-China tensions and their global impact. “We are observing geopolitically driven trade shifts worldwide,” she noted during a media briefing, adding that “while overall trade to GDP remains stable, the dynamics of who trades with whom are definitely changing.”

In 2024, the number of trade tariffs between China, the EU, and the US has increased. Both the EU and the US have cited unfair trade practices and overmanufacturing by China as reasons for imposing higher tariffs, as local industry players feel disadvantaged. China has retaliated by implementing temporary higher tariffs on some US and EU imports, continuing the economic tug-of-war.

IMF’s Gopinath cautioned that the increased tariffs would incur costs for all involved parties. Speaking on the US-China trade relations and their global implications, she expressed concern about the potential decline in output and pressure on inflation. “Output is projected to be much lower than expected for all countries, and inflationary pressures will persist,” she said, emphasizing the need to avoid such outcomes.

Gopinath’s statements echo those of IMF Managing Director Kristalina Georgieva, who previously raised concerns about the shift in global trade dynamics, moving away from good trade practices and towards retaliatory measures between rival countries.

Tim Adams, CEO of the Institute of International Finance, also weighed in, warning against tariff proposals from US presidential candidate Donald Trump, predicting they would lead to disinflation and soaring interest rates.

IMF’s Gopinath underscored the importance of stable US-China relations for global economic stability. “It is in everyone’s best interest to maintain these relationships,” she said, emphasizing the mutual benefits of cooperation.

According to the IMF’s 2024 World Economic Outlook report, the persistent use of protectionist policies by countries will likely lead to a slowdown in global economic growth. While the US economy has been a driving force for global growth this year and is expected to continue into 2025, the struggling Chinese economy, battling inflation, and the counter-offensives between the two countries have contributed to high interest rates globally.

The IMF report also highlights the strong performance of emerging markets like India and Brazil, which have exceeded expectations. In contrast, China, the world’s second-largest economy, has underperformed in 2024 with a below-trend growth rate of 4.5% and is projected to face further challenges in 2025.

Additionally, the report cautions against potential risks, including armed conflicts, new trade wars, and the lingering effects of tight monetary policies implemented by central banks to curb inflation.

“The IMF has confirmed that the United States is leading advanced economies in growth for the second consecutive year,” stated Lael Brainard, Director of the White House’s National Economic Council.

In conclusion, the IMF report emphasizes, “A widespread departure from a rules-based global trading system is prompting unilateral actions by many countries. An escalation of protectionist policies would not only heighten global trade tensions and disrupt supply chains but also jeopardize medium-term growth prospects.”

The IMF urges the international community to recognize the impact of the trade war between China and the US and take proactive steps to mitigate its far-reaching consequences.

Tarah Nguyen

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