The International Monetary Fund (IMF) criticised the Biden administration’s decision to aggressively raise tariffs on some Chinese goods, underscoring its warning that tensions between the world’s top two economies risk hurting global trade and growth.

“Our view is that the US would be better served by maintaining open trade policies that have been vital to its economic performance,” IMF spokeswoman Julie Kozack said Thursday in Washington when asked about the move earlier this week.

IMF Managing Director Kristalina Georgvieva last month said “all eyes are on the US” as the fund has grown increasingly vocal in criticising its biggest and most influential shareholder for the global impact of its policies. That includes Washington’s surging debt levels, trade restrictions and industrial policies aimed at China, and even the impact of the Federal Reserve’s tight monetary policy, which has weakened currencies globally against the dollar.

President Joe Biden on Tuesday unveiled sweeping tariff hikes on a range of Chinese imports, including electric vehicles, in an election-year bid to bolster domestic manufacturing in critical industries.

The president’s top economic advisor, Lael Brainard, on Thursday defended the new tariffs as necessary to protect recent manufacturing and job gains in the US from “unfairly under-priced exports from China”.

IMF research shows that fragmentation in the global economy can have a variety of outcomes, including potential losses for global gross domestic product of as much as 7% in a “severe fragmentation”, equivalent to the combined output of the German and Japanese economies. The cost would be higher if there’s a breakdown in trade and availability of technology, Kozack said.

“We also encourage the US and China to work together toward a solution that addresses the underlying concerns that have exacerbated trade tensions,” she said. “And, more broadly, we urge all countries to work within the multilateral framework to resolve their differences.”

  - Bloomberg