Mark Malloch-Brown Photo: Courtesy of Tsinghua PBCSFLuis Awazu Pereira da Silva Photo: Courtesy of Tsinghua PBCSF

The world today is undeniably fragmented, largely due to the disruptive trade and tariff policies of the current US administration. While the US policies may represent a temporary setback, the focus should remain on forging a constructive way forward, which is to establish a renewed multilateral framework.

How can this be achieved? The answer lies in forming a "coalition of goodwill" among nations, particularly between Europe and China, but also extending to Latin America, Asia, and Africa. Such a coalition must prioritize inclusion, social development, and cooperation across critical areas like climate policy and sustainable growth. 

However, the fight against global warming cannot come at the expense of economic development and social equity, especially in the Global South. These nations rightly prioritize raising the living standards of their citizens, meaning climate policies must be aligned with economic growth. The solution lies in combining the two agendas.

Major economies such as China and Europe can play a crucial role by supplying the necessary technological and financing mechanisms to support this dual agenda. At the same time, developing countries can contribute to this framework by providing essential commodities and becoming sources of demand for a new, sustainable economic model. 

Instead of fearing the rise of protectionism, the Global South should transform these challenges into opportunities, creating a true win-win scenario where climate action and development reinforce each other.

Ironically, current US policies may inadvertently facilitate deeper cooperation between China, Europe, and developing nations, particularly in advancing a more multipolar international financial and monetary order.

The US' policies have had an unintended collateral effect: inflicting reputational damage to the US dollar and to the "safe-asset" status of US treasuries. This moment also presents an opportunity to strengthen emerging international institutions while rebalancing power within the older international institutions, such as the Bretton Woods system.

How to assess the global macroeconomic outlook in this context? In the short term, tariffs and similar protectionist measures have an inflationary impact. These measures essentially act as supply shocks, disrupting production chains and driving up prices across multiple sectors. 

Over the medium term, US policy uncertainty may prove even more damaging. Such uncertainty could dampen consumer confidence and lead to a contraction in investment as businesses tend to adopt a cautious stance amid unpredictable trade and financial conditions. It will also lead to recessionary consequences, and some analysts already warn of a possible US recession.

As a result, this situation risks a stagflationary scenario, a troubling combination of rising inflation and slowing economic growth. It represents the worst possible economic environment because it leaves policymakers in a dilemma: Should they prioritize controlling inflation or stimulating growth? An inflationary surge may necessitate raising interest rates, but anticipation of a recession could call for rate cuts. 

Historically, governments have often responded to such dilemmas with a "wait-and-see" approach until it becomes clear whether inflationary supply shocks or demand contraction will predominate. But in today's context, such hesitation could undermine urgent global priorities such as social development and climate action, exacerbating these challenges and delaying progress in critical areas.

China and the US are currently experiencing a temporary truce in their trade dispute. However, without a long-term agreement or permanent ceasefire, tariffs will continue to exert adverse effects on both the US and global economies.

Despite a relatively gloomy picture, there are reasons for optimism. First, the reputational damage to US financial assets has improved the relative risk profile of developing countries as an investment destination. The US Treasury, long considered the gold standard of safety, no longer enjoys unquestioned supremacy, opening doors for increased capital flows to the Global South.

Second, countries like China continue to advance their development efforts amid growing global uncertainty. Greater investment in the green transition is essential for nations to decarbonize their economies. China has been at the forefront of this effort, implementing policies that support cutting-edge fields in sustainable growth.

China's leadership in technology merits attention. Undoubtedly, it stands at the forefront of digital innovation, electric vehicles, renewable energy and other green technologies. In today's protectionist climate, particularly if US-China trade tensions persist, China and regions like Europe, Latin America and South Africa need to engage in dialogue and deeper cooperation in emerging sectors.

The best path forward for them is cooperative discussions to achieve mutually beneficial solutions. This enables trade partners to leverage Chinese high-tech advancements while fostering local production capacity. Facilitating genuine technology transfer and establishing local manufacturing capabilities offers a more sustainable path forward for all parties involved.

Third, China has been playing a significant role in fostering greater integration with the Global South. While the Global South comprises diverse countries and should not be viewed as a monolith, collaboration and connectivity among developing nations are accelerating and expected to deepen further.

Taking China-Brazil cooperation as an example, the two nations have a long-standing partnership that continues to deepen. This relationship creates mutual benefits, not only in trade but also through technology transfer, as demonstrated by recent engagements. Such cooperation is vital for navigating pressures in the global trading system.

Fourth, there exists substantial opportunity to benefit from an increasingly multipolar international monetary system, coupled with more technologically advanced international payment mechanisms. China has been actively developing such financial instruments across Asia, and it is expected that these innovations will progressively extend to many other regions of the world.

Our world is witnessing tremendous opportunities emerging from new trade technologies within these cooperative frameworks, such as instant payment systems, digital currencies, and blockchain applications. These innovations create multiple pathways to help the world move beyond the current phase of trade contraction and protectionist measures implemented by the current US administration.

In conclusion, rather than dwelling on pessimism, global challenges should be approached with optimism, emphasizing the new opportunities they present for the rest of the world. This is a chance for greater cooperation between major economies like China and Europe, as well as with developing nations across Latin America, Asia, and Africa.

The article was based on an interview conducted by the Global Times with Luis Awazu Pereira da Silva, former deputy finance minister of Brazil, former deputy governor of the Central Bank of Brazil, and former deputy general manager of the Bank for International Settlements, during the 2025 Tsinghua PBCSF Global Finance Forum.