The International Monetary Fund (IMF) has warned that political tensions around the world, particularly the technology conflict between the United States and China, will impact overseas investment and drag down the world’s gross domestic product (GDP) by up to 2% in the long term.
In a report released on Wednesday (April 5), the IMF stated that private companies and policymakers around the world are evaluating ways to restructure their supply chains. However, this situation will affect foreign direct investment (FDI), as companies may move their production bases back to their own countries or to other countries with more credibility.
The IMF also expressed concern that several bills, including the US Chips and Science Act and Japan’s announcement of expanding export restrictions on cutting-edge chip manufacturing technology, will hurt investment in emerging market and developing countries.
The US Chips and Science Act aims to limit China’s access to high-end chips that it may use to manufacture cutting-edge military equipment. The US government is concerned that China is using state-of-the-art supercomputer systems to improve calculations in weapons design, nuclear weapons testing, hypersonic systems, and other missile systems.
On the other hand, the Chinese government has made moves to increase the power of key ministries and set up a new office to take care of important information. This is considered a major overhaul of the country’s technology sector to tackle the US in sectors ranging from artificial intelligence (AI) to semiconductor chips.
According to a recent survey conducted by the American Chamber of Commerce in China (AmCham China), US companies operating in China are increasingly pessimistic about the outlook for the Chinese economy. For the first time in the American Chamber of Commerce’s 25-year history, companies surveyed were unanimous that “China no longer ranks first in the top three investment destinations for US companies.”
The survey showed that 66% of companies think rising tensions between the US and China remain the number one challenge for doing business, with 65% saying they are unsure whether the Chinese government will continue to be open to foreign investment. Most US companies feel less welcomed by China than they were in the past year.
The IMF’s warning is significant because the US-China technology conflict could have a profound impact on the global economy. The IMF urged policymakers to address these tensions and seek diplomatic solutions to prevent long-term economic damage.