Gita Gopinath, the IMF’s first deputy managing director, said in a speech yesterday (11 December) that the world was at a “turning point” in tensions between superpowers China and the US that could lead to a global fragmentation along lines of regional support.

She said: “While there are no signs of broad-based retreat from globalisation, fault lines are emerging as geoeconomic fragmentation is increasingly a reality. If fragmentation deepens, we could find ourselves in a new Cold War.”

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Gopinath added that the economic costs of Cold War II “could be large” because the world was now even more integrated.

“If we descend into Cold War II, knowing the costs, we may not see mutually assured economic destruction. But we could see an annihilation of the gains from open trade,” she said.

Policymakers “must not lose sight of those gains”, she said, and encouraged them to advocate strongly for a multilateral rules-based trading system and the institutions that support it.

She urged policymakers to seek solutions that minimise the costs of fragmentation. 

“The focus should be on pragmatic approaches that preserve the benefits of free trade to the extent possible, safeguard solving global challenges, while achieving domestic goals of security and resilience,” she said.