Germany relies on “derisking” in trading. The IMF fears a fragmentation of the global economy. There is talk of a second Cold War.
Washington – A deep divide has emerged within the G20 states since the war in Ukraine has been raging. The fronts are set: on one side are the western industrial nations, on the other are Russia and China. At a meeting of finance ministers on the sidelines of the spring meeting of the International Monetary Fund (IMF), in which Christian Lindner (FDP) was also involved, no agreement or solutions were reached. On the contrary.
Geoeconomic fragmentation – is there a risk of a second Cold War?
The meeting was dominated by concerns about a fragmentation of the global economy into East and West. This was reported by the
Handelsblatt
. The IMF was clear about this: “Geoeconomic fragmentation could weigh on world trade and prosperity growth in the coming years.” Gita Gopinath, deputy head of the IMF, even spoke of a second Cold War.
The IMF points out that there is more than just concern behind this due to the changed trade flows. The formation of political blocs has been evident for a long time; Western industrialized states such as the USA, the EU, Canada, Japan and Australia against China, Russia and other states that had not condemned the attack on Ukraine, which violated international law. Trade growth between the two blocs has been “significantly weaker” than trade growth within each bloc over the last two years.
Completely new signs – ideological enemies as trading partners
The International Monetary Fund had already drawn parallels to a possible second Cold War in the past. A similar driving force can be seen - namely the ideological and economic rivalry between the two superpowers USA and China. During the Cold War, the USA and the Soviet Union faced each other as opponents. However, the general conditions have changed fundamentally.
Above all, this is about the extreme interconnection of the various economic powers. Overall, world trade accounts for around 60 percent of global GDP; During the Cold War it was 24 percent. Ironically, the two arch-enemies are each other's most important trading partners. No country in the world buys as many Chinese goods as the USA - in 2023 alone, China's exports to the USA amounted to around 502 billion US dollars.
The trade volume between China and Russia, although it recently increased by 30 percent, is not keeping up. According to
Spiegel
, the trade volume between the USA and China is more than three times larger. Europe even exceeds that, doing business with China worth more than $900 billion a year. Purely from the numbers – if China were looking for maximum profit – the country would have to join forces with Europe.
Europe's role in the second Cold War
Where does Europe stand in all this? The European Union is traditionally an ally of the USA. Many of its member countries are in the NATO defense alliance, and while the USA has the most powerful army in the world, no trading bloc is as wealthy as the EU. Even without many member states, Germany is in third place among the economically strongest nations; together with its partner countries, the EU has a gross domestic product of 25,000 euros per capita.
“Europe is now deeply integrated into the global markets,” says the EU itself. Thanks to modern means of transportation and communication, both production and purchasing and selling around the world are easier than ever before. The EU's trade policy aims to create economic growth and jobs by improving trade and investment opportunities. The European Union would have a lot to lose.
Europe is changing course – “derisking” instead of the Cold War
However, many EU countries are under pressure to act. The gas crisis in 2022 showed how dangerous dependence on other nations can be. Germany had a hard time isolating itself from Russia; Countries like Austria and France are still tied to Vladimir Putin by long-term contracts when it comes to energy supplies. Similar effects are currently visible in the case of trade with China. Sectors such as solar would not function without Chinese input.
The result: The USA and the EU want to become more independent. “Derisking” is the buzzword of the moment. According to EU Trade Commissioner Valdis Dombrovskis, there is a shift from “efficiency” to “resilience”.
Possible consequences of a Second Cold War
The effects of a fragmentation of world trade would be significantly stronger than 50 years ago; not just for the EU, but for all players on the global market. Many countries would have much greater difficulty accessing certain raw materials. At least they would become more expensive. According to the IMF, this would negatively affect, among other things, mega-projects such as the energy transition.
The Berlin-based MErcator Institute for China Studies (MERICS) estimates the effects of a Second Cold War to be even more drastic. Mikko Huotari, the head of MERICS, has already spoken of a “mega-catastrophe” or a “meltdown” of the global economy. More concrete information came from Gita Gopinath. In the event of a split of the global economy into two large blocs with a simultaneous trade blockade between the blocs, losses would be around 2.5 percent of GDP. The split could have a much harder impact on some countries, with individual losses of up to seven percent of GDP. Poorer countries in particular are at increased risk here.