The global economy faces a "crisis of division" on the back of an intensifying U.S.-China technology war, the Japanese government warned Tuesday in a white paper, saying a severe economic decoupling between democratic and autocratic states would deal a blow to both sides.
The government underscored the importance of rebuilding a rules-based trade order, developing resilient supply chains, and strengthening cooperation with developing and emerging countries collectively called the Global South to restore confidence in the global economy.
It presented a scenario in which the world is broadly divided into three blocs -- the West led by the United States, the East led by China and Russia, and neutral nations.
Citing a study by the Japan External Trade Organization's Institute of Developing Economies, the white paper said that in a worst-case scenario where each country sets a non-tariff barrier equivalent to 100 percent tariff rates, global gross domestic product in 2030 would be 7.9 percent smaller than without such divisions.
Such extreme decoupling could see GDP 11.6 percent lower in Japan than the baseline scenario, 12.0 percent lower in the United States, and down 9.4 percent in China.
But while the paper warned of the serious damage dealt to countries in the two opposing camps, it said Global South nations would keep enjoying high growth by continuing to trade with both sides.
Neither the democratic nor autocratic bloc is likely to be able to fully win over Global South countries, thus making it difficult to completely isolate the opposing camp, the paper said.
Underscoring such a trend, Japanese firms are shifting major investment destinations from China to members of the Association of Southeast Asian Nations as well as India amid geopolitical and economic security concerns, the white paper said.
The annual paper also called for securing critical materials and goods including semiconductors by cooperating with like-minded partners and boosting domestic production capacity to cope with supply chain disruptions.
It said risks to the global economy also include Russia's war in Ukraine, persisting inflation and increasing cases of so-called economic coercion involving practices used as a tool to pursue political objectives, with China apparently in mind.
