The global economy is facing a new threat from the protracted trade conflict between Washington and Beijing. Despite ongoing negotiations, the two superpowers have yet to reach a compromise, with significant implications for global trade. Analysts warn that the trade war between the United States and China could slash global GDP by 7%.
According to the International Monetary Fund, if US-China trade relations do not stabilize soon, the global economy will suffer considerably. Such a situation could shave as much as 7% off global GDP, the IMF predicts.
Experts at the IMF foresee that over 3,000 new trade restrictions could be imposed in the coming years. With this in mind, many countries are increasingly turning to gold investments, viewing the dollar as a less reliable currency. Gold is now seen as a "politically neutral safe asset, insulated from sanctions or seizure," the agency emphasizes.
In the first quarter of 2024, central banks worldwide acquired nearly 290 tons of gold, the highest level since 2016. After eight years of stability with subdued demand, the precious metal market surged. In 2023, the so-called "Chinese bloc" increased its gold reserves to 4.3%, up from 2% in 2015. Meanwhile, the American bloc’s gold holdings remained unchanged.
In addition, Beijing is gradually diversifying away from US Treasury and agency bonds, trimming its holdings to 30% from 44%.
The IMF also highlights the strain on the global dollar financial system. Experts say emerging markets are suffering from a strong dollar. Unlike the Federal Reserve, these countries have limited capacity to lower their key interest rates. The high rates set by the US regulator are hurting their economies as they have to struggle with increased borrowing costs.
Analysts believe that the world’s poorest countries will bear the brunt of the US-China conflict, potentially facing losses four times greater than those of other nations. In this scenario, commodity markets will split into isolated blocs, trading exclusively with either China or the United States.
The IMF fears that China's efforts to avoid a recession by investing in manufacturing and boosting exports could lead to new trade wars with the United States, the European Union, and other countries.
Experts also note trade frictions between the EU and China. There is a growing possibility that EU countries may revert to protectionism due to the overwhelming influx of Chinese goods into European markets.
