If the COP28 summit decides the future of the literal environment with climate change policy, the World Congress of the International Economic Association (IEA) goes a long way to deciding its economic climate.
Held between December 11th and December 15th, the congress features research presentations by leading economists from across the globe. In fact, according to the IEA website, more than 500 economists from all over the world are expected to attend and over 400 papers will be presented in stand-alone and parallel academic sessions.
‘Cold War II’
The conference’s welcome message was opened with a plenary speech by the International Monetary Fund’s (IMF) first managing deputy director Gita Gopinath. She began things with a bang, speaking about the possibility of an imminent second Cold War.
The overarching question of this congress is ‘Are we at a turning point?’ I believe we are. In fact, I will take this congress’ question a step further and ask: are we on the brink of Cold War II? The historian Niall Ferguson argues that we already are. If so, what would that mean for the global economy?”
Gopinath went on to say that the reasoning behind this was the deepening fragmentation between ‘world superpowers’ the United States and China, from their several bouts of trade wars.
Dire straits for developing nations
According to Gopinath, the financial losses would be devastating. But, sadly, they would be far more so for developing nations.
If the global economy were to fragment into two blocs based on UN voting on the 2022 Ukraine Resolution and trade between the two blocs were eliminated, global losses are estimated to be about 2.5 percent of GDP. But depending on economies’ ability to adjust, the losses could reach as high as 7 percent of GDP. At the country level, losses are especially large for lower income and emerging market economies.”
Considering the latest IMF and WEF reports put the 2023 global GDP figures at about $105 trillion, this figure could be as much as $7.5 trillion. That’s roughly the same amount as the annual GDP of the United Kingdom and Germany combined – more than triple Russia’s annual GDP.
Implications for climate change
Worse still, these divisions could hamstring the current work underway which many consider to be planet earth’s top priority: driving solutions for climate change.
Fragmentation would also inhibit our efforts to address other global challenges that demand international cooperation. The breadth of those challenges—from climate change to AI—is immense. Recent IMF analysis shows that fragmentation of trade in minerals critical for the green transition—such as copper, nickel, cobalt, and lithium—would make the energy transition more costly. Because these minerals are geographically concentrated and not easily substituted, disrupting their trade would lead to sharp swings in their prices, suppressing investment in renewables and EV production.”