The International Monetary Fund (IMF) analyzed that, amid the whirlwind of conflict between the U.S. and China, South Korea has benefited from increased investment from the U.S., but if trade with China is cut off, losses will increase. He also predicted that if any country in the world does not choose either the US or China, foreign direct investment (FDI) into that country will decrease further.
In the World Economic Outlook (WEO) report, which was partially released on the 5th (local time), the IMF announced that FDI from April 2020 to 2022 compared to before the novel coronavirus infection (Corona 19) pandemic (2015-March 2020). said to be reduced by about 20%. In particular, it was analyzed that the US drastically reduced direct investment such as semiconductors in China and Vietnam, and Korea and Canada reaped the benefits. It means that the ‘friend shoring’ (supply chain solidarity between allies) promoted by the United States was reflected in actual investment.
U.S. Trade Representative Catherine Tai also made it clear that she would rewrite the U.S.-centered trade order, including the Free Trade Agreement (FTA), to respond to China. Representative Tai emphasized in an interview with Bloomberg News that day, “We will seek a joint response with our allies against China’s unfair behavior.”
What if the world economy was completely divided between the US and China camps? The IMF observed that the decline in FDI in the Chinese camp would be greater given that FDI resources are concentrated in the US and developed countries. However, he analyzed, “The loss of the entire US camp cannot be ignored because of the damage that the US camps, Korea and Japan, will suffer from the severance of trade with China.”
However, the IMF pointed out that if India and Indonesia walk a tightrope between the two camps, FDI will further decrease. Uncertainty about which camp these countries will fall into in the future makes global companies further reduce their investments.
The IMF also pointed out that the US and Europe’s Semiconductor Support Act and the US’ Inflation Reduction Act (IRA) are factors triggering the block of FDI, and predicted that 2% of world economic production would suffer a loss due to a decrease in FDI. He added that strategic industries such as semiconductors in the United States, Germany, and Korea could become more vulnerable to FDI reduction due to reshoring.
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Source: Donga
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.